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    DOCTORAL THESIS
      DOCTORA L T H E S I S


 Multiple Marketing Channel Conflict
Multiple Marketing Channel Conflict
     with Focus on the Internet
   with aa Focus on the Internet:
                A Dual Perspective
                 A Dual Perspective

     Internet                    Manufacturer                        Catalogue

           Internet       Reseller                     Reseller
           Reseller      Company 1                    Company 2


                      Internet     Physical      Internet       Physical
                       Store        Store         Store          Store


                                 End Customers




                         Lena Goldkuhl
                       LENA GOLDKUHL

       Department of Business Administration and Social Science
        Industrial Marketing and e-Commerce Research Group
                         Luleå University of Technology
            Department of Business Administration and Social Sciences
             Industrial Marketing and e-Commerce Research Group

                2007:70|:02-5|: - -- 07⁄70 -- 
Multiple Marketing Channel Conflict
   with a Focus on the Internet:
         A Dual Perspective




                  LENA GOLDKUHL




                 Luleå University of Technology
    Department of Business Administration and Social Science
     Industrial Marketing and e-Commerce Research Group
                              2007
    With love and affection to
Peter, Alexandra and Rickard
              Mom and Dad
vi
_______________________________________________________________________________   ABSTRACT ______


ABSTRACT
The emergence of electronic commerce has led many companies to complement
their reseller networks with direct-to-the-customer Internet sales. This inevitably
creates conflict. The way companies view and manage channel conflict is consid-
ered to be an important success factor. Accordingly, the purpose of this research
was to explore and describe managers’ perspectives on conflict in multiple market-
ing channels, with a focus on the Internet.

To ground the research, personal, open-ended interviews were conducted with
managers at Ducati and SAS. The results of these interviews, along with an ex-
tended literature review, formed the foundation for a survey among resellers of
those companies.

The results of this research question some of the premises in the channel conflict
literature. Specifically, goal incompatibility and inadequate communication were
found to have a direct and negative effect on resellers’ performance. In contrast,
channel conflict per se was not detrimental to firms. It is postulated that it is the
causes of conflict, and not necessarily conflict itself that are harmful. Clearly, goal
incompatibility and inadequate communication are damaging to performance of
firms.

If companies do not attend to goal compatibility and communication among chan-
nel members, resellers are likely to end the relationship or otherwise behave in
their own interests. For example, resellers that represent multiple firms are likely to
discriminate against a company with whom they have poor communication and
incompatible goals. Consequently, producers are encouraged to promote open
communication with their channel members and ensure that their goals and those
of their resellers are in alignment.

A tangible example of the importance of goal compatibility is found in the fact that
a firm that involves its resellers in its Internet sales achieves positive outcomes. To
put it simply, channel integration yields lower conflict and higher performance.




                                                 i
ii
___________________________________________________________________   ACKNOWLEDGEMENTS ______


ACKNOWLEDGEMENTS
Several people have guided, supported, and inspired me during my work on this
thesis. First of all, I would like to express my deepest thanks to Professor Esmail
Salehi-Sangari. Your commitment and support is beyond what words can describe!
My innermost gratitude and thanks also go to my supervisor, Professor Pierre Ber-
thon, for your brilliant insights, invaluable comments and tremendous support. I
would also like to thank Professor Leyland Pitt and my colleague Magnus Hultman
for your valuable comments in the final seminar, which further improved this the-
sis. I would like to thank Professor Tawfik Jelassi for your support during the first
part of this research.

I also would like to thank all my wonderful colleagues (past and present) at Indus-
trial Marketing & e-Commerce, for all your support during this process. I cannot
fully express how fortunate I feel having such wonderful colleagues! A special ac-
knowledgement is directed to my dear friend and colleague Maria Styvén. Thank
you for countless discussions concerning all aspects of life inside and outside the
world of research. Particular thanks are also directed to Lars-Ole Forsberg, since
you are the one responsible for recruiting me to the research world.

This thesis, however, would never have been accomplished without respondents.
Therefore, I would like to gratefully acknowledge the kind cooperation and sup-
port of management at both Ducati and Scandinavian Airlines. I am also grateful to
those resellers of Ducati and SAS who contributed information necessary for com-
pleting this thesis.

I would like to express my gratitude to a number of organisations that financially
supported this research, i.e. Handelns Utvecklingsråd, Längmanska Företagarfon-
den, Nordbankens Norrlandsstiftelse, Luleå University of Technology, Norrbot-
tens Forskningsråd, Mål 1 Norra Norrland, Innovationsbron Luleå AB, and Spar-
banksstiftelsen Norrbotten.

Last, but certainly not least, my warmest thanks are directed to my family and
friends. Your love and support have made these years of study a very enjoyable and
unforgettable experience. Peter, you and our children Alexandra and Rickard,
more than anyone, deserve special, heartfelt thanks for your support and patience
during my work with this thesis. Thank you for filling my life with happiness and
joy!

Luleå, November 2007


Lena Goldkuhl


                                                iii
____________________________________________________________________                  TABLE OF CONTENTS ______

TABLE OF CONTENTS
1     INTRODUCTION ......................................................................... 1
    1.1       Introduction ......................................................................................... 1
    1.2       The Internet as a Marketing Channel ................................................... 1
      1.2.1      Definition of Marketing Channels...............................................................2
      1.2.2      Definition of Multiple Marketing Channels ................................................3
    1.3       Advantages with Multiple Marketing Channels..................................... 5
      1.3.1      Illustrative Example of a Multiple Marketing Channel System .....................6
    1.4       Challenges with Multiple Marketing Channels ..................................... 6
      1.4.1      Definition of Channel Conflict ...................................................................8
    1.5       Research Purpose ................................................................................. 8
    1.6       Disposition of the Thesis ...................................................................... 9
2     STUDY I: PRODUCERS’ PERSPECTIVE ........................................ 11
    2.1       Managing Multiple Marketing Channels..............................................11
      2.1.1      Causes of Channel Conflict ......................................................................11
      2.1.2      Channel Conflict Issues When Adding the Internet...................................17
      2.1.3      Assessing the Seriousness of Channel Conflict ...........................................18
      2.1.4      Minimising Channel Conflict ...................................................................22
    2.2       Research Questions & Frame of Reference .........................................27
      2.2.1      Research Questions ..................................................................................27
      2.2.2      Developing a Conceptual Frame of Reference ..........................................30
      2.2.3      Conceptual Frame of Reference ...............................................................36
    2.3       Methodology.......................................................................................37
      2.3.1      Research Purpose .....................................................................................38
      2.3.2      Research Approach ..................................................................................38
      2.3.3      Research Strategy .....................................................................................39
      2.3.4      Case Study ...............................................................................................39
      2.3.5      The Empirical Investigation ......................................................................41
      2.3.6      Issues of Validity and Reliability ...............................................................43
    2.4       Empirical Evidence..............................................................................45
      2.4.1      Case One: Ducati Motor Holding SpA .....................................................45
      2.4.2      Case Two: Scandinavian Airlines ..............................................................57
    2.5       Analysis ...............................................................................................68
      2.5.1      Within-Case Analysis – Ducati .................................................................68
      2.5.2      Within-Case Analysis - SAS......................................................................78
      2.5.3      Cross-Case Analysis ..................................................................................86
    2.6       Conclusions.........................................................................................96
      2.6.1      Findings and Conclusions .........................................................................96
      2.6.2      Theoretical Contributions....................................................................... 103
      2.6.3      Managerial Implications .......................................................................... 104
      2.6.4      Suggestions for Future Research ............................................................. 105




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______ TABLE OF CONTENTS ____________________________________________________________________


3     STUDY II: RESELLERS’ PERSPECTIVE ........................................ 107
    3.1       Research Purpose and Research Questions ........................................107
      3.1.1      Research Question One ......................................................................... 107
      3.1.2      Research Question Two......................................................................... 108
      3.1.3      Research Question Three ....................................................................... 108
    3.2       Delimitations.....................................................................................108
      3.2.1 Commitment ......................................................................................... 109
      3.2.2 The Extranet .......................................................................................... 109
      3.2.3 Functionality of Conflict and Impact on Brand ....................................... 109
      3.2.4 Power and Interdependence ................................................................... 110
4     DEVELOPING A RESEARCH MODEL ......................................... 112
    4.1       Causes of Channel Conflict ...............................................................112
      4.1.1      Goal Incompatibility............................................................................... 113
      4.1.2      Domain Dissensus................................................................................... 115
      4.1.3      Inadequate Communication.................................................................... 117
    4.2       Channel Conflict...............................................................................119
      4.2.1      Level of Channel Conflict....................................................................... 121
    4.3       Outcomes .........................................................................................122
      4.3.1      Performance ........................................................................................... 122
      4.3.2      Satisfaction ............................................................................................. 124
    4.4       Research Model & Hypothesis Overview..........................................126
5     METHODOLOGY ..................................................................... 128
    5.1       Research Purpose ..............................................................................128
    5.2       Research Approach ...........................................................................128
    5.3       Research Strategy ..............................................................................129
    5.4       The Empirical Investigation...............................................................129
      5.4.1 Sample ................................................................................................... 130
      5.4.2 Questionnaire Development ................................................................... 130
      5.4.3 Data Collection and Response Rate........................................................ 134
      5.4.4 Data Analysis .......................................................................................... 136
      5.4.5 Issues of Validity and Reliability ............................................................. 140
6     RESULTS & ANALYSIS .............................................................. 144
    6.1       Descriptive Statistics ..........................................................................144
    6.2       Normality Analyses............................................................................148
      6.2.1      Normality Analysis - Ducati.................................................................... 148
      6.2.2      Normality Analysis - SAS ....................................................................... 148
    6.3       Missing Data......................................................................................149
      6.3.1      Missing Data Analysis - Ducati................................................................ 149
      6.3.2      Missing Data Analysis - SAS ................................................................... 149
    6.4       Measure Validation............................................................................149
      6.4.1      Exploratory Factor Analysis of the Causes of Channel Conflict................ 150
      6.4.2      Exploratory Factor Analysis of the Level of Channel Conflict.................. 151
      6.4.3      Exploratory Factor Analysis of Outcomes................................................ 152
      6.4.4      Confirmatory Factor Analysis.................................................................. 153

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____________________________________________________________________                       TABLE OF CONTENTS ______

       6.4.5       Reliability Analyses of Resulting Scales................................................... 154
       6.4.6       Validity & Common Method Variance ................................................... 157
       6.4.7       Summated Averaged Scales ..................................................................... 160
    6.5        Hypothesis Testing ............................................................................161
       6.5.1 Structural Equation Modelling - SAS ...................................................... 161
       6.5.2 Hypothesis Testing – SAS....................................................................... 167
       6.5.3 Hypothesis Testing - Ducati ................................................................... 168
7      DISCUSSION, CONCLUSIONS & CONTRIBUTIONS .................... 173
    7.1        Discussion .........................................................................................173
       7.1.1       Causes of Channel Conflict .................................................................... 174
       7.1.2       Level of Channel Conflict....................................................................... 178
       7.1.3       Relationship between Level of Channel Conflict and Outcomes ............. 179
    7.2        Limitations, Contributions and Conclusions ......................................179
       7.2.1       Limitations of the Study.......................................................................... 180
       7.2.2       Theoretical Contributions....................................................................... 180
       7.2.3       Managerial Implications .......................................................................... 187
    7.3        Suggestions for Future Research ........................................................189
REFERENCES .......................................................................................

APPENDICES
Appendix 1 Examples of Cause-Related Issues from the Research Instrument used in the
Three Channel Dyads .......................................................................................................
Appendix 2 Empirical Studies of Channel Conflict in Marketing Channels ........................
Appendix 3 Interview Guide .............................................................................................
Appendix 4 Questionnaire.................................................................................................
Appendix 5 Sample Cover Letter.......................................................................................


FIGURES
Figure 1.1 Use of Physical and Virtual Channels in an Integrated Click-and-Mortar
Business...........................................................................................................................5
Figure 1.2 Example of a Multiple Marketing Channel System ..........................................6
Figure 1.3 Disposition of Thesis.......................................................................................9
Figure 2.1 Dual Distribution with On-line Selling: Channel Structure Options ..............14
Figure 2.2 The Intrachannel Conflict Process.................................................................18
Figure 2.3 Decision-Making Framework .......................................................................20
Figure 2.4 Conceptual Frame of Reference....................................................................37
Figure 2.5 Ducati’s Marketing Channel System..............................................................47
Figure 2.6 The MH900e ...............................................................................................48
Figure 2.7 SAS’s Marketing Channel System..................................................................58
Figure 3.1 The Intrachannel Conflict Process............................................................... 107
Figure 4.1 Research Model ......................................................................................... 126
Figure 6.1 Performance ............................................................................................... 153
Figure 6.2 Level of Channel Conflict........................................................................... 154


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Figure 6.3 Outcomes Part of Research Model ............................................................. 162
Figure 6.4 Research Model ......................................................................................... 163
Figure 6.5 Re-Specified Research Model .................................................................... 165
Figure 7.1 Empirically Derived Model......................................................................... 183


TABLES
Table 2.1 Measures of the Causes of Channel Conflict ...................................................32
Table 2.2 Measures of the Seriousness of Channel Conflict ............................................33
Table 2.3 Measures of the Conflict Reducing Approaches .............................................34
Table 2.4 Conflict Reducing Pricing Approaches when Adding the Internet..................35
Table 2.5 Case Study Tactics for Four Design Tests .......................................................43
Table 2.6 Within-Case Analysis of the Causes of Channel Conflict – Ducati ..................69
Table 2.7 Within-Case Analysis of the Seriousness of Channel Conflict – Ducati ...........71
Table 2.8 Within-Case Analysis of Conflict Reducing Approaches – Ducati ..................76
Table 2.9 Within-Case Analysis of the Causes of Channel Conflict – SAS......................78
Table 2.10 Within-Case Analysis of the Seriousness of Channel Conflict – SAS .............81
Table 2.11 Within-Case Analysis of Conflict Reducing Approaches – SAS ....................84
Table 2.12 Cross-Case Analysis of the Causes of Channel Conflict.................................87
Table 2.13 Cross-Case Analysis of the Seriousness of Channel Conflict ..........................89
Table 2.14 Cross-Case Analysis of Conflict Reducing Approaches .................................94
Table 2.15 Conflict-Reducing Pricing Approaches When Adding the Internet ............ 104
Table 4.1 Previous Measures of Marketing Channel Conflict ....................................... 121
Table 4.2 Overview of Hypotheses.............................................................................. 127
Table 5.1 Conceptual and Operational Definitions of the Constructs ........................... 131
Table 5.2 Strength of Association between Variables .................................................... 139
Table 5.3 Reference Values to Test Model Fit ............................................................. 140
Table 6.1 Descriptive Statistics – Ducati and SAS......................................................... 145
Table 6.2 Factor Analysis of the Causes of Channel Conflict ........................................ 150
Table 6.3 Factor Analysis of the Level of Channel Conflict .......................................... 151
Table 6.4 Rotated Component Matrix ........................................................................ 152
Table 6.5 Fit Indices for Scales..................................................................................... 154
Table 6.6 Reliability Analysis of Scales......................................................................... 155
Table 6.7 Factor Analysis of Retained Indicators - SAS ................................................ 158
Table 6.8 Discriminant and Convergent Validity - Bivariate Correlations..................... 159
Table 6.9 Summated Averaged Scales - SAS ................................................................ 161
Table 6.10 Summated Averaged Scales - Ducati........................................................... 161
Table 6.11 R2-Correlations for Outcomes Part of Research Model .............................. 161
Table 6.12 Maximum Likelihood Estimates - Outcomes Part of Research Model......... 162
Table 6.13 Modification Indices and Parameter Change Statistics ................................. 163
Table 6.14 R2 Correlations for the Re-Specified Research Model................................ 165
Table 6.15 Maximum Likelihood Estimates - Re-Specified Model............................... 166
Table 6.16 Fit Indices for the Tested Models ............................................................... 166
Table 6.17 Hypothesis Testing – SAS (AMOS Estimates)............................................. 167
Table 6.18 Multiple Regression on Level of Channel Conflict ..................................... 169
Table 6.19 Simple Regression of Goal Incompatibility on Domain Dissensus ............... 170
Table 6.20 Simple Regression of Inadequate Communication on Goal Incomp............ 170

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Table 6.21 Simple Regression of Inadequate Communication on Domain Diss. ........... 170
Table 6.22 Multiple Regression on Performance.......................................................... 171
Table 6.23 Multiple Regression on Satisfaction ............................................................ 172
Table 6.24 Hypothesis Testing – Ducati (Regression Analysis) ..................................... 172
Table 7.1 Hypothesis Tests – Comparison of Ducati and SAS ...................................... 173
Table 7.2 Overview of Propositions ............................................................................ 183




                                                        ix
“Companies are recognizing that success in the new economy
 will go to those who can execute clicks-and-mortar strategies
              that bridge the physical and the virtual worlds”

                      - Gulati and Garino (2000, p. 107)
_________________________________________________________________________ INTRODUCTION     ______


1 INTRODUCTION
This chapter will serve as an introduction to the purpose of this thesis, which is to explore
and describe managers’ perspectives on conflict in multiple marketing channels, with a focus
on the Internet. Definitions of some key issues will be provided. The chapter ends with a
specification of the research purpose and an overview of the disposition of this thesis.

1.1 Introduction


T        he emergence of e-commerce1 has created a new business paradigm, one
         that presents marketers with striking opportunities, including reduced
         costs, access to new market segments and the ability to provide informa-
tion worldwide on a continuous basis (Webb, 2002). Even so, e-commerce does
not come without problems. That is, the addition of the Internet has made channel
conflict the top issue for many businesses today (Gilbert & Bacheldor, 2000). The
way in which businesses manage this channel conflict is an important factor in their
success (Webb, 2002). Consequently, a particularly important aspect of e-
commerce is its impact on marketing channels2 (ibid.).

1.2 The Internet as a Marketing Channel


A        lthough the Internet is an entirely new marketing channel3 it shares many
         of its characteristics with other conventional marketing channels (Peterson,
         Balasubramanian & Bronnenberg, 1997). However, there are some excep-
tions. Some of the unique characteristics of the Internet marketing channel, as
compared to traditional marketing channels, include the ability to inexpensively
store vast amounts of information, the availability of inexpensive means of search-
ing, the organising and disseminating of such information, interactivity and the
ability to supply information on demand, the ability to provide perceptual experi-
ences far superior to a printed catalogue, the ability to mediate transactions, and the
relatively low entry and setting up costs for sellers (Peterson et al., 1997; Kiang,
Raghu & Shang, 2000).

Pitt, Berthon and Berthon (1999) discuss the irrelevance of location, the homogenization
of time and the death of distance. The irrelevance of location means that any screen-based
activity can be operated from anywhere in the world. The homogenization of time
means that a web site is always open. Sellers do not have to be awake to serve cus-
tomers, and in the Christmas rush, for instance, customers do not have to queue up

1
  e-commerce, i.e. electronic commerce, refers to the process of buying, selling, or exchanging
goods, services and information via computer networks, including the Internet (Turban, King, Lee,
Warkentin & Chung, 2002).
2
  Authors writing about channels of distribution from a marketing perspective use the terms distri-
bution channels and marketing channels interchangeably.
3
  Marketing channels will be defined in Section 1.2.1

                                                1
______ CHAPTER 1 ______________________________________________________________________________

in order to purchase gifts. Time can thus be made uniformly consistent, or ho-
mogenized, for all buyers and sellers. The death of distance refers to the ability of the
Internet to serve as a physical distribution channel for digital products, such as pic-
tures, videos, sound and words. In such cases, the costs of distribution is not af-
fected by distance (ibid.).

One of the main assumptions of the Internet is that in many cases it eliminates in-
termediaries (cf. Pitt et al., 1999). Intermediaries, however, perform a number of
activities that are not easily duplicated by manufacturers. These include making in-
ventory immediately available when customers want it, and providing services that
allow one-stop shopping, such as personal assistance, dressing rooms, repairs and
returns (Levy & Weitz, 2004). Except for one-stop shopping, these activities can-
not be fully provided by the Internet marketing channel alone. Therefore, apart
from the distribution of digital products, the Internet marketing channel probably
will not eliminate or serve as a substitute for conventional retail channels (Peterson
et al., 1997). Thus, in most cases, companies will add the Internet to existing mar-
keting channels, thereby employing multiple marketing channels. Before a discus-
sion on the use of more than one marketing channel, definitions of marketing
channels and multiple marketing channels will be provided.

1.2.1      Definition of Marketing Channels
Authors writing about channels of distribution from a marketing perspective use
the terms distribution channels and marketing channels interchangeably. Stern and El-
Ansary (1977), for instance, describe a “marketing or distribution channel” as “an
inter-organization system comprised of a set of interdependent institutions and
agencies involved with the task of moving anything of value from its point of con-
ception, extraction, or production to points of consumption” (p. 4). Coughlan,
Anderson, Stern and El-Ansary (2001), on the other hand, employ only the term
marketing channel: “A marketing channel is a set of interdependent organizations
involved in the process of making a product or service available for use or con-
sumption” (p. 3). O’Connor and Frew (2002), when writing about the Internet,
use the term distribution channel, and define it as a mechanism that provides “suf-
ficient information to the right people at the right time and in the right place to al-
low a purchase decision to be made, and also allows the consumer to make a reser-
vation and pay for the required product” (p. 33).

The activities or functions of a marketing channel that provide the services de-
manded by end users are labelled marketing flows (Vaile, Grether & Cox, 1952).
Eight generic marketing flows exist, namely, physical possession, ownership, promotion,
negotiation, financing, risking, ordering and payment (ibid.). Physical possession refers to
all storage activities, including transportation between two channel members
(Coughlan et al., 2001). Ownership refers to the transfer of ownership from one or-
ganisation or person to another. Promotion includes personal selling, media advertis-

                                              2
_________________________________________________________________________ INTRODUCTION   ______

ing, sales promotions, publicity, etc. Negotiation refers to the effort to reach a final
agreement on prices and other terms, so that the delivery can occur. Financing re-
fers to the terms of sale, such as payment in thirty days, and risking is concerned
with price guarantees, warranties, insurance, repair, after-sales service, etc. Ordering
and payment are the flows concerned with the actual purchase and payment of the
offering. Sometimes, more than one channel member is needed in order to per-
form all these flows (ibid.).

The definitions of Stern and El-Ansary (1977) and Coughlan et al. (2001) postulate
that marketing channels are inter-organisational arrangements. Today, though, di-
rect marketing channels, including the Internet, compete against, become a substi-
tute for, or complement conventional retail channels (Balasubramanian, 1998).
O’Connor and Frew (2002) define the Internet as a distribution channel. Their
definition, however, is too narrow, since it is limited to consumers and does not
include the actual delivery to customers. In this thesis, the term marketing channels
will be used, as it implies that issues will be addressed from a marketing perspec-
tive. Hence, the following definition will be employed:

A marketing channel is a system involved, either directly or indirectly, with making some-
thing of value available for use or consumption.

This definition does not exclude any of the eight flows described above. In addi-
tion, if a marketing channel cannot perform these flows on its own, they can be
accomplished indirectly by using another marketing channel. For instance, when
distributing non-digital products bought on the Internet, the actual delivery, i.e.
physical acquisition, of the product will be handled indirectly.

Besides the Internet, marketing channels consist of a variety of retail formats, com-
pany sales forces, distributors, agents, call centres and catalogues. These can be clas-
sified as direct marketing channels and indirect marketing channels. Direct marketing
channels are those that flow directly from the company to the customers, e.g., the
Internet or the company sales force. Indirect marketing channels, on the contrary,
refers to the use of another company to reach customers, e.g., distributors or agents
When adding an online presence to an existing channel, businesses become multi-
ple marketing channel entities. So, how can multiple marketing channels be de-
fined?

1.2.2     Definition of Multiple Marketing Channels
The terminology used to describe what in this thesis is referred to as multiple mar-
keting channels has varied considerably in the marketing literature, ranging from
multimarketing (Weigand, 1977), dual distribution (Stern & El-Ansary, 1988), mul-
tichannel marketing systems (Kotler, 1988), dual-multiple channels (Frazier, Sawhney &
Shervani, 1990), hybrid marketing systems (Moriarty & Moran, 1990) and hybrid dis-

                                              3
______ CHAPTER 1 ______________________________________________________________________________

tribution systems (Webb, 1997) to multiple channels (Frazier, 1999). Some important
differences exist among these terms.

Some of the definitions include the term “same basic product,” or variations on
that theme: multimarketing occurs “when a company uses separate channels to sell
the same product to markets differing in some important way” (Weigand, 1977, p.
98); “The term dual distribution describes a wide variety of marketing arrangements
by which a manufacturer or a wholesaler reaches its final markets by employing
two or more different types of channels for the same basic product” (Stern & El-
Ansary, 1988, p. 403), and when “more than one primary channel is used to sell
the same product line to the same target market”, businesses are using multiple
channels (Frazier, 1999, p. 232).

Kotler (1988) focuses on the targeting of customers: multichannel marketing takes
place when “a single firm uses two or more marketing channels to reach one or
more customer segments” (p. 368). Webb (1997) likewise focuses on targeting cus-
tomers but also includes customer needs: a hybrid distribution system “is defined as a
multichannel arrangement characterized by the execution of distribution tasks
among a combination of distinct channels, direct and/or indirect, resulting in a va-
riety of marketing mix offerings designed to satisfy the needs of diverse target mar-
ket segments” (p. 39). In addition, in certain instances, “two or more of the distri-
bution channels used by the supplier firm may cover the same target segment(s), al-
though such overlap in the marketplace is not necessarily by design” (Webb, 1997,
p. 2). This definition takes note of the fact that some companies use a mix of both
direct and indirect channels to best serve customers. It also captures the possibility
of targeting the same customer segment(s) with more than one marketing channel,
an issue which Alba et al. (1997), among others, state is of particular concern since
the introduction of the Internet. It further includes the possibility of selling differ-
ent product versions or brands in different channels; these strategies will be dis-
cussed further in Chapter 2. However, following from the discussion of marketing
channels and distribution channels in Section 1.2.1, the term multiple marketing
channels will be used in this thesis. Accordingly:

Multiple marketing channels are a multi-channel arrangement characterized by the execution
of distribution tasks among a combination of distinct channels, direct and/or indirect, resulting
in a variety of marketing mix offerings designed to satisfy the needs of diverse target segments.
Two or more marketing channels used by the supplier may cover the same target segment(s),
although such overlap in the marketplace is not necessarily by design.

So, why do companies employ multiple marketing channels?




                                               4
_________________________________________________________________________ INTRODUCTION   ______

1.3 Advantages with Multiple Marketing Channels


C        ompanies use multiple marketing channels, among other reasons, to cut
         costs and increase sales growth through extended market coverage
         (Moriarty & Moran, 1990). One of the advantages of multiple marketing
channels is that each channel presents a set of unique characteristics, which offers
businesses the opportunity to adapt to changing customer needs and purchasing
patterns. Consequently, multiple marketing channels are needed when customers
have different service needs, when customers respond differently to promotions, or
when customers’ price responses differ (Anderson, Day & Rangan, 1997; Frazier,
1999). In other words, different customers with different buying behaviours will
use the channels that best serve their needs. When purchasing, customers can move
from one channel to another at different stages of a single transaction. The integra-
tion of the Internet channel and a physical channel has been illustrated by Stein-
field, Bouwman and Adelaar (2002) (see Figure 1.1).




Figure 1.1 Use of Physical and Virtual Channels in an Integrated Click-and-
Mortar Business (Steinfield, Bouwman & Adelaar, 2002, p. 94)
For instance, a customer might gather information about a product online (A1),
purchase it at a physical outlet (B0) and obtain after-sales service online (C1). The
more integrated the channels become, the more paths are possible. Forrester (2004)
found that 65 percent of all U.S. online consumers who have researched a product
online purchased that product offline. Almost half of these consumers preferred the
offline channel, since they wanted to see the item before purchasing it. Some mul-
tiple channel businesses, i.e. Eddie Bauer (www.eddiebauer.com), even give cus-
tomers the option of returning items bought through the web site or the catalogue,
by mail or in any of their physical stores. There are several reasons for offering this
service: it provides an enormous convenience to web shoppers, an advantage that
pure Internet-based companies cannot match, and it helps the physical stores by
getting more customers through the door (Gulati & Garino, 2000). In addition,
customers purchasing through multiple channels spend more than their single-
channel counterparts (Ashcraft, 2001). Once in stores, besides purchasing the
product they originally researched online, multiple-channel shoppers on average
spend over 30 percent more on impulse purchases (Forrester, 2004).


                                              5
______ CHAPTER 1 ______________________________________________________________________________

As can be seen, multiple marketing channels present several advantages, both for
managers and for customers. So, what does a multiple marketing channel system
look like?

1.3.1  Illustrative Example of a Multiple Marketing Channel System
An example of a multiple marketing channel system is depicted in Figure 1.2.

      Internet                           Manufacturer                          Catalogue


            Pure Internet         Reseller                       Reseller
              Reseller           Company 1                      Company 2



                            Internet       Physical        Internet       Physical
                             Store          Store           Store          Store



                                       End Customers



Figure 1.2 Example of a Multiple Marketing Channel System
Mattel, the toy manufacturer, appears to work in this way when selling some of its
Fisher-Price toys. For example, in November 2004, Sesame Street's E-L-M-O was
available for US$ 30 at Mattel’s Fisher-Price online web site (www.fisher-
pricestore.com), and for the same price in Fisher-Price’s print catalogue. It could
also be bought through indirect marketing channels at www.buy.com, a pure
Internet retailer, for US$ 24.99; at www.toysrus.com, the online business of Toys
R Us, for US$ 19.95; at www.walmart.com, the online business of Wal-Mart, for
US$ 19.72; and probably also in the physical stores of both Toys R Us and Wal-
Mart.
Even though businesses might benefit from the use of multiple marketing channels,
the system presents some challenges as well.

1.4 Challenges with Multiple Marketing Channels


W           hen businesses introduce the Internet channel, channel conflict will oc-
            cur (e.g., Smith, Bailey & Brynjolfsson, 1999), since traditional chan-
            nels, e.g., resellers, retailers, distributors, dealers and even internal sales
organisations, will feel threatened by the online e-commerce (Friedman & Furey,
1999; Gilbert & Bacheldor, 2000). This is understandable, because adding the
Internet makes the company’s Internet channel a competitor of its physical chan-

                                              6
_________________________________________________________________________ INTRODUCTION     ______

nel(s) (Smith et al., 1999). Each faces a possible loss of revenue as well as competi-
tion for ownership of customers. For instance, manufacturers can always price
lower and, in some cases, even provide more efficient service than distributors,
which will cause customers to migrate from distributors to direct channels
(Friedman & Furey, 1999). Such competition is often labelled cannibalization. It
occurs when one marketing channel grows at the expense of another channel,
rather than providing incremental revenue for the firm (Webb, 1997). Existing
business partners, therefore, will fear that the introduction of the Internet channel,
in the end, will lead to the dismantling of their marketing channel (Gilbert &
Bacheldor, 2000). There is a great fear of alienating resellers among companies that
are establishing e-commerce sites, and especially among those that are establishing
direct links to customers for the first time. The only greater fear is having no e-
commerce presence at all (ibid.).

There are situations, though, in which channel conflict can be functional. Without
conflict, systems can become passive, non-innovative, and, eventually, non-viable
(Stern & Heskett, 1969). Channel conflict can even motivate channel members to
adapt, grow and seize new opportunities (Stern & El-Ansary, 1988). In addition, a
company with no revenue in conflict may be sacrificing coverage, thereby failing
to attract new customers (Moriarty & Moran, 1990). According to Friedman and
Furey (1999), channel conflict between a company’s direct channels is a manage-
able problem. Such conflict is just another way of saying that the manufacturer of-
fers customers multiple purchasing opportunities. The growth of one channel at
the expense of another direct channel will have no net negative effect on revenue.
Their conclusion, therefore, is that the only channel conflict worth caring about is
that between a manufacturer’s direct channels and its resellers (ibid.). Webb (2002),
on the other hand, states that conflicts among groups within the supplier firm and
between two separate organisations are equally important, since conflict in one set-
ting is likely to result in conflict in the other. Accordingly, channel conflict, re-
gardless of setting, should not be ignored.

The reason for this is that conflict is direct, personal and opponent-centred behav-
iour, and it can therefore degenerate quickly into actions intended to destroy, in-
jure, or impede another party in an interdependent relationship (Reve & Stern,
1979; Stern & El-Ansary, 1988). Such dysfunctional4 conflict can be harmful, since
the conflicting objectives of various channels can lead to internal conflicts over
customers, raising the potential for customer confusion and dissatisfaction that, in
the end, will lead to declining profitability for the company (Cespedes & Corey,
1990; Moriarty & Moran, 1990). Consequently, according to a survey of 50 con-
sumer-goods manufacturers conducted by Forrester (Gilbert & Bacheldor, 2000),

4
  Dysfunctional is used in the sense of having disadvantageous or unwanted consequences (cf. Gat-
torna, 1978), i.e. in this thesis dysfunctional and dangerous conflict will be treated as synonyms.

                                                7
______ CHAPTER 1 ______________________________________________________________________________

channel conflict is the most serious issue facing management in its online sales
strategy.

1.4.1      Definition of Channel Conflict
Although several definitions of channel conflict have been offered in the literature
(e.g., Stern & Gorman, 1969; Lusch, 1976b; Robicheaux & El-Ansary, 1976; Stern
& El-Ansary, 1977; Eliashberg & Michie, 1984; Gaski, 1984; Gaski & Nevin,
1985; Stern & El-Ansary, 1988), the common theme is that channel conflict exists
if one channel member perceives another channel member to be engaged in be-
haviour that prevents or impedes it from attaining its goal(s). Since the definitions
are in essence the same, the following definition, adopted from Stern and El-
Ansary (1988, p. 285), will be used in this thesis:

Channel conflict is a situation in which one channel member perceives another channel mem-
ber or members to be engaged in behaviour that prevents or impedes it from achieving its
goals.

Steinfield et al. (2002) claim that the avoidance of channel conflict is critical for
click-and-mortar companies if they are to achieve the possible benefits of multiple
marketing channels. It is, therefore, important to identify how it can be avoided,
and how cooperative behaviour can be encouraged (ibid.).

1.5 Research Purpose


I    n Chapter 1 it was established that the emergence of e-commerce has led more
     businesses to add the Internet to their existing marketing channels. For busi-
     nesses, the advantages of multiple marketing channels, such as reduced costs,
increased market coverage and increased sales, are striking (e.g., Moriarty &
Moran, 1990; Forrester, 2004). However, multiple marketing channels present
challenges as well. With the addition of the Internet channel, channel conflict will
follow (Smith et al., 1999). Although some conflict can be beneficial, it soon can
degenerate into actions intended to destroy, injure, or impede another party in an
interdependent relationship (Stern & El-Ansary, 1988). Such dysfunctional channel
conflict can be harmful, as it raises the potential for customer confusion and dissat-
isfaction, which eventually leads to declining profitability for the company (e.g.,
Moriarty & Moran, 1990). Accordingly, channel conflict seems to be the most se-
rious concern for management when adding the Internet channel (Gilbert &
Bacheldor, 2000).

Despite the importance of this issue, and despite repeated calls for research on mul-
tiple channel conflict (cf. Frazier, 1999; Mols, 2000; Steinfield et al., 2002; Webb,
2002; Webb & Hogan, 2002; Rangaswamy & Van Bruggen, 2005), the topic has



                                              8
_________________________________________________________________________ INTRODUCTION   ______

received minimal attention in the academic literature. Hence, the research purpose
of this thesis is:

 To explore and describe managers’ perspectives on conflict in multiple marketing channels,
                              with a focus on the Internet


1.6 Disposition of the Thesis


I   n this section, the disposition of this thesis will be provided (see Figure 1.3).
    Chapter 1 presents the purpose of the research. Chapter 2 includes a study of
    the producers’ perspective, i.e. the major part of the licentiate thesis that was
defended and published in 2005 (cf. Goldkuhl, 2005). It is included because it is
needed to draw conclusions between the two studies, and also to give a richer pic-
ture of the channel conflict in the companies studied.

                  Chapter 1
       Introduction and Research Purpose


                  Chapter 2
         Study I: Producers’ Perspective


                  Chapter 3
         Study II: Resellers’ Perspective


                  Chapter 4
          Developing a Research Model


                  Chapter 5
                  Methodology


                  Chapter 6
               Results & Analysis


                  Chapter 7
    Discussion, Conclusions & Contributions


Figure 1.3 Disposition of Thesis
Chapter 3 introduces the study of the resellers’ perspective on channel conflict and
provides a bridge between the two studies. This chapter will also include the re-
search questions for Study II, as well as the delimitations of the study. In Chapter

                                              9
______ CHAPTER 1 ______________________________________________________________________________

4, the research hypotheses and the research model is developed. Chapter 5 dis-
cusses different methodological questions and approaches for Study II and describes
the methodology used to answer the research questions posed in Chapter 3. Chap-
ter 6 contains the results and analysis of the results of Study II. Chapter 7 discusses
these findings and presents the conclusions drawn from both Study II and Study I,
followed by the limitations of Study II and the implications of the research both
for managers and for future research.




                                              10
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______


2 STUDY I: PRODUCERS’ PERSPECTIVE
This chapter will include the first part of this doctoral research, i.e. Study I, in which produc-
ers’ perspectives on channel conflict was studied. The chapter will start with a review of chan-
nel conflict theories, followed by the research questions, frame of reference, methodology, em-
pirical evidence, and analysis. The chapter will end with the conclusions drawn from Study I,
along with suggestions for future research.

2.1 Managing Multiple Marketing Channels


A        s early as 1969, Stern and Heskett recognized that in order to prescribe
         how channel conflict can be reduced or resolved, an analysis of its causes
         has to be done. Accordingly, first, theories about the causes of channel
conflict will be presented, followed by channel conflict issues that arise when add-
ing the Internet, theories about how to assess the seriousness of channel conflict,
and finally, theories about how to minimize channel conflict.

2.1.1     Causes of Channel Conflict
Causes are the underlying bases of conflict which the parties in conflict may not
even be aware of (Ong, Elliott & Armstrong, 1990). Stern and Heskett (1969), in a
conceptual paper, proposed three primary causes of conflict, i.e. goal incompatibility,
domain dissensus and differing perceptions of reality. These are still considered the major
causes of conflict in marketing channels (cf. Coughlan et al., 2001).

Goal incompatibility, and subsequent conflict, is very common (Coughlan et al.,
2001). The goals of one channel member very often are not compatible with the
goals of another channel member (Stern & Heskett, 1969; Schmidt & Kochan,
1972; Kochan, Huber & Cummings, 1975; Perry & Levine, 1976). With the use
of resellers, this becomes even more apparent. Even though the use of resellers is
much cheaper and offers the business greater flexibility as compared to a business-
owned sales force (e.g., Friedman & Furey, 1999), coordinating relationships with
resellers is a challenge, as they are independent businesses with multiple suppliers
and product lines (Coughlan et al., 2001). Both the reseller and the supplier want
to maximise their profits. However, their ideas of how this should be accomplished
differ (Friedman & Furey, 1999). For the reseller, it could mean charging custom-
ers more while at the same time holding down expenses. The supplier, on the
other hand, wants to see the reseller do almost exactly the opposite (Coughlan et
al., 2001). Accordingly, conflict issues might include whether prices and service are
being maintained at “reasonable” levels (Reve & Stern, 1979).

Domain dissensus often occurs when one channel member perceives that the other
is not taking proper care of its responsibilities within its domain. This can mean
doing the job in the wrong way, not doing the job at all, or trying to do another
channel member’s job (Coughlan et al., 2001). Stern and El-Ansary (1992) assert

                                               11
______ CHAPTER 2 ______________________________________________________________________________

that the four critical elements of a channel domain are the population to be served,
the territory to be covered, the functions or tasks to be performed and the tech-
nology to be employed. Conflict issues might include who has the right to repre-
sent a particular product within a given territory (Stern & El-Ansary, 1977; Reve
& Stern, 1979; Magrath & Hardy, 1987). That is, when manufacturers use several
marketing channels simultaneously, channels sometimes find themselves competing
to reach the same set of customers. This might lead to distributors and dealers be-
ing bypassed via direct selling, which almost certainly will cause channel conflict
(Magrath & Hardy, 1987; Bucklin, Thomas-Graham & Webster, 1997). Another
common reason for conflict is pre- and post-sales support; that is, marketing chan-
nels argue over who should do it, how it should be done, and how they should be
compensated. A further reason is inventory, since suppliers often consider it a resel-
ler’s duty to carry a large inventory, while resellers instead want to be restocked
quickly from a central location (Coughlan et al., 2001).

Even though individual goals within the marketing system may correspond with
one another, and domains may be well defined, channel conflict still may occur
due to differing perceptions of reality, i.e. channel members having conflicting percep-
tions of the same situation (Stern & Heskett, 1969). This is an important source of
conflict, because it indicates that there will be different reactions to the same situa-
tion, which will frustrate channel members and produce conflict. One major rea-
son for such misperception is that different channel members are exposed to vary-
ing information and influences, giving them different parts of the overall picture
(Coughlan et al., 2001). In order to achieve needed coordination among channel
members, good communication within the channel is necessary (Mohr & Nevin,
1990). Too much communication is just as bad as too little, since too much con-
tact can overload channel members and have dysfunctional consequences. There-
fore, one should examine communication in terms of the amount of contact in re-
lation to how much contact is necessary to conduct activities adequately (ibid.).

It must be noted, though, that when studying the above described causes of chan-
nel conflict, Rosenberg and Stern (1971) were not able to support the causes of
conflict for each of their researched dyads (manufacturer-distributors, distributors-
dealers and manufacturer-dealers); each cause, however, was significant in at least
two dyads. Examples of conflict issues used in their questionnaire are presented in
Appendix 1.

Etgar (1979), on the other hand, discusses the causes of conflict in terms of attitudi-
nal or structural causes. Attitudinal causes are associated with disagreements about
channel roles, expectations, perceptions and channel communications. Role refers to the
behaviour that is prescribed for a certain job position. Conflict can emerge if a per-
son does not act in accordance with an established role, or when channel roles are
not well defined for all channel members. Expectations among channel members


                                              12
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

can be different, due to differences in information availability, information process-
ing capacities, or experience. Channel members also may have different perceptions
of the channel and its environment. For instance, dealers may not pay attention to
conditions in markets in which they do not operate, while manufacturers may em-
phasize the broader implications of inter-channel competition and demand. Com-
munication refers to the fact that in a marketing channel there is constant communi-
cation. Information about new products, promotional campaigns, technical inno-
vations, etc., has to be transferred from the producer to the resellers, while resellers
have to inform the producer about market conditions, customers’ reactions to
products and so on. When communication is not working properly, misunder-
standings will occur, incorrect strategies will be implemented, and mutual feelings
of frustration will arise (ibid.).

Structural causes consist of three sets of factors: goal divergence, competition for scarce re-
sources and drive for autonomy (Etgar, 1979). Goal divergence as a cause of conflict has
been described earlier in this section. Competition for scarce resources occurs when the
demand for resources in a channel exceeds the available supply. For instance, dif-
ferent channel members, such as dealers and wholesalers, may compete for exclu-
sive rights to a special market. Drive for autonomy means that one party tries to exer-
cise control over another party, such as a manufacturer attempting to control re-
tailers’ pricing through suggested retail price lists (ibid.). In his research, Etgar
(1979) found that conflict was generated primary by attitudinal factors.

What Etgar (1979) refers to as drive for autonomy is referred to by other authors as
power (e.g., Hunt & Nevin, 1974). Power can be described as the ability to get
someone to do something he/she would not have done otherwise (Gaski, 1984).
Power in channel relationships received considerable attention during the 1970s.
Not all those who recognise a connection between power and conflict share the
same perspective. Some researchers claim that conflicts arise in a channel because
superiors attempt to control the behaviour of subordinates, who resist such control,
while other researchers view power as a result of, or response to, conflict. But most
researchers acknowledge that there is a causal relationship between power and con-
flict, and that it can, and does, proceed in either direction (ibid.). The above men-
tioned causes of conflict were all identified before the Internet existed. So, what
are the causes when the Internet is added?

Causes of Channel Conflict and the Internet Marketing Channel
Conflicts caused by goal incompatibility, domain dissensus and differing perceptions of re-
ality can arise when an online channel is created alongside, for instance, a bricks-
and-mortar retail channel (Coughlan et al., 2001). Three different situations in
which conflicts can occur due to online sales are depicted in Figure 2.1.




                                              13
______ CHAPTER 2 ______________________________________________________________________________

 (a) Manufacturer has own on-line presence (e.g., Tupperware; dotted lines indicates common
 ownership)

                                      Manufacturer (Tup-
                                          perware)


     Standard Channel (inde-                       Owned Internet Sales
    pendent direct salespeople)                  Channel (Tupperware.com)



                                          Consumers


 (b) Manufacturer sells through third-party pure-play on-line reseller (e.g., Callaway Golf selling
 through buy.com)
                                      Manufacturer (Cal-
                                        laway Golf)

      Standard Channel (pro
     shops, bricks-and-mortar                            Independent Pure-Play Internet
         sport-golf outlets)                                Sales Channel (buy.com)


                                          Consumers


 (c) Manufacturer sells through some standard channels that do operate their own on-line stores
 and some that do not (e.g., books sold through bricks-and-mortar retailers and Barnes & No-
 ble’s on-line site, bn.com)
                                         Manufacturer
                                  (Simon & Schuster, publisher)


                                                       Barnes & Noble

      Standard Channel             Barnes & Noble                      Barnes & Noble
     (bricks-and-mortar           (bricks-and-mortar               (internet sales channel)
         bookstores)                  bookstores)                         (bn.com)



                                          Consumers


Figure 2.1 Dual Distribution with On-line Selling: Channel Structure Options
(Coughlan et al., 2001, p. 463)



                                                14
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

In case (a), the manufacturer itself creates a company-owned online presence, in
direct competition with its traditional reseller channel. Tupperware, for instance,
sells its plastic containers in this way, i.e. both through independent direct sales
people and on the Internet. In this case, disintermediation is said to occur, i.e. the in-
termediary is bypassed by the manufacturer. In case (b), besides selling though its
standard channel(s), the manufacturer decides to sell through a pure Internet re-
tailer, i.e. a retailer that does not possess any physical stores. Callaway Golf Clubs,
for instance, can be bought at buy.com, a pure Internet retailer. Case (c) describes
the situation when the manufacturer’s reseller starts up its own online operation. A
book publisher selling through Barnes & Noble is an example of this situation. Of
course, any combination of these online strategies is possible (ibid.).

Case (a) and the Causes of Channel Conflict
When adding the Internet channel, conflict caused by goal incompatibility can occur
if the manufacturer wants to maximize its profits over all its marketing channels,
one of which is the online channel, since the Internet channel may offer the manu-
facturer a higher margin on sales than the traditional bricks-and-mortar channel
does (Coughlan et al., 2001). In addition, in order to cover the costs of establishing
and operating the new channel, customers may have to be pushed to buy directly
from the online channel, rather than through the resellers (ibid.).

As the Internet allows businesses to establish a direct channel to customers, the
emergence of e-commerce has made domain dissensus an even more burning issue
(Alba et al., 1997). That is, a manufacturer selling online may directly cannibalize
the customers of the bricks-and-mortar channel, thereby causing conflict about the
population to be served (Coughlan et al., 2001). The bricks-and-mortar channel,
of course, is convinced that the customers who chose to shop online at the manu-
facturer’s site would have shopped at the physical store if the web site did not exist.
Furthermore, the Internet pushes old territorial borders aside, since it can take
away business from any location in the market area served by the bricks-and-
mortar channel, thereby causing domain dissensus over territorial rights (ibid.).

Domain dissensus over the functions and duties to be performed by channel mem-
bers also can arise when the company sells through a company-owned Internet
channel (Coughlan et al., 2001). A customer can visit a bricks-and-mortar store,
inspect the product, ask the personnel some questions about the product, check the
price, and then buy the product online. This is a classic example of free-riding,
since the bricks-and-mortar retailer bears the cost of serving the customer, but it
receives no compensation for it because it does not get the sale on the product. A
further domain dissensus can occur if a customer who has bought from the manu-
facturer’s Internet channel decides to return the product, and tries to do so at a
bricks-and-mortar retailer. Generally, the retailer will not agree to repurchase the
item, since otherwise it will bear the cost without compensation (ibid.).

                                           15
______ CHAPTER 2 ______________________________________________________________________________

Differing perceptions of reality also frequently occur between manufacturers and resel-
lers in case (a) (Coughlan et al., 2001). Manufacturers often believe that they are
just expanding their market reach, generating sales from consumers who cannot or
will not purchase the company’s products in any other way. Actually, as many as
38 percent of survey respondents who spent more on holiday gifts online in 1999
than in 1998 gave as their reason that they were able to purchase products online
that were not accessible to them near where they lived or worked. Even so, bricks-
and-mortar resellers probably will perceive that sales made on the manufacturer’s
web site have been stolen from them (ibid.).

Case (b) and the Causes of Channel Conflict
When the manufacturer decides not to sell online itself, but to use a pure Internet
retailer (e-tailer) instead, conflict caused by goal incompatibility, domain dissensus
and/or differing perceptions of reality might occur (Coughlan et al., 2001). In this case,
however, the conflict might not be limited to the manufacturer and its resellers; it
also might occur between the bricks-and-mortar retailer and its online counterpart
directly. The two competing resellers are companies that probably have very dif-
ferent goals. The e-tailer often has a strong need to generate sales volume and mar-
ket share in order to maintain its flow of venture capital, as it seeks to grow and
dominate the online channel for its product type. Therefore, the e-tailer might cut
the price, or offer free delivery or some other incentive in order to sell. Bricks-
and-mortar resellers, on the other hand, focus on a shorter-term horizon for profit
and cost covering, charge higher prices, and find it hard to compete. Free-riding is,
of course, also possible in this channel structure. Accordingly, the bricks-and-
mortar retailer faces the higher cost structure arising from its provision of pre-sale
service, further limiting its ability to compete on price with the e-tailer, who en-
joys a lower marginal cost of sales. It should be noted that, in case (b), the manu-
facturer has no direct control of the pricing or service offered by the different re-
sellers. The manufacturer is, therefore, somewhat limited in its ability to prevent
channel conflict between the traditional retailer and the e-tailer (ibid.).

Case (c) and the Causes of Channel Conflict
Online sales also occur in case (c), but here it is one of the manufacturer’s resellers
that operates both online and through bricks-and-mortar stores (Coughlan et al.,
2001). It might seem as if this is the same conflict situation as in case (b), but there
is a major difference: in case (c), the online reseller internalises, at least in part, the
negative effects of aggressive online competition on the bricks-and-mortar channel,
because it too will suffer from cannibalisation of the physical store sales by the
Internet channel. That is, charging much lower prices online will lead customers to
transfer from the stores to the Internet channel, whereby the combination reseller
cannibalises itself. In addition, the combination reseller risks confusing its custom-
ers if it offers different conditions in the different channels. A combination reseller
is therefore more likely to offer a relatively fair price and fair conditions for its

                                              16
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

online offerings, in comparison to the offering it gives at its physical store. Thus, a
bricks-and-mortar retailer faces fewer potential conflicts from a combination re-
tailer than from a pure Internet retailer (ibid.).

Communication and Coordination
Webb (1997) conducted research of four companies that were using multiple mar-
keting channels, including the Internet. It must be noted, though, that only one of
the researched companies actually used the Internet as a sales channel. The case
studies of these companies indicate that communication and coordination exert the
most influence on conflict, and that domain similarity and goal incompatibility, in-
stead of influencing conflict directly, are types of issues over which conflict-related
disagreements occur (Webb, 1997).

This has been a description of the causes of conflict when companies add the
Internet marketing channel to existing channels. But what issues are the parties
struggling over?

2.1.2     Channel Conflict Issues When Adding the Internet
Whereas causes were described as the underlying bases of conflict, issues can be re-
garded as the symptoms of causes (Ong et al., 1990). When companies add the
Internet marketing channel, existing business partners, e.g., resellers, retailers, dis-
tributors, dealers and even the internal sales organisation, will resist (Gilbert &
Bacheldor, 2000). And why not? Each faces a possible loss of revenue as well as
competition for ownership of customers. For instance, manufacturers can always
price lower and, in some cases, even provide more efficient service than distribu-
tors, which will cause customers to migrate from distributors to direct channels
(Friedman & Furey, 1999). Such competition is often labelled cannibalization. It oc-
curs when one marketing channel grows at the expense of another channel, rather
than providing incremental revenue for the firm (Webb, 1997). Existing business
partners, therefore, will fear that the introduction of the Internet channel, in the
end, will lead to the dismantling of their marketing channel (Gilbert & Bacheldor,
2000).

Multiple channels also compete with one another for internal resources such as
capital, personnel, products and technology (Webb & Hogan, 2002). For instance,
a company’s sales force, resellers and Internet channel may have conflicting inter-
ests over issues related to budget allocation, revenue goals, customer assignments,
the timing and nature of advertising, and promotional support and pricing (Webb,
2002).

When researching a hosiery company using multiple marketing channels, including
the Internet, Webb (1997) found pricing, product availability, customer assignment, pro-
motion, resource allocation and the reward system to be channel conflict generators.

                                          17
______ CHAPTER 2 ______________________________________________________________________________

Pricing refers to different price levels and the use of coupons in different channels.
Product availability means that certain hot items were not available in all channels,
due to supply and demand. Customer assignment refers to the fact that there were
crossovers between different channels, e.g., customers shopping both in outlets and
department stores. Promotion applies to the inequality of expenditures on promo-
tion for each channel. Resource allocation relates to both manufacturing and financial
constraints. The researched hosiery company used two separate brands, and some-
times both brands needed access to the plants simultaneously, which caused re-
source constraints. The reward system caused conflict, since sometimes the objec-
tives of the different channels were at odds with what was best for the corporation
(ibid.).

According to Webb (1997), there is evidence that, of all these conflict issues, pric-
ing is the biggest generator of channel conflict. For instance, the hosiery company’s
two different brand-name groups frequently expressed frustration over discounted
prices offered by the Internet marketing channel. They believed that such tactics
had a negative impact on both their sales and the image of their brands (ibid.).

In seeking to build and manage multiple marketing channels, managers must first
acknowledge and communicate the existence of channel conflict. Thereafter, the
severity of the conflict should be assessed (Moriarty & Moran, 1990).

2.1.3     Assessing the Seriousness of Channel Conflict
When the level of channel conflict is assessed, it is often considered to be a state,
although it is also a process consisting of episodes or incidents (Coughlan et al.,
2001). Rosenberg and Stern (1971) have developed a simplified model of this
process. Even though the authors do not explain all the different parts of the
model, they claim it is based on a multidisciplinary review of the conflict and
channels literature, and that it emphasizes the major aspects of the conflict process
(see Figure 2.2).



      Causes of                          Measurable level of                  Outcomes
      conflict                                conflict                        (behavioral
                                                                              and financial)
                   Structural and                              Behavioral
                   attitudinal factors                         reaction
                                                               (conflict
                                                               resolution
                                                               strategies)



Figure 2.2 The Intrachannel Conflict Process (Rosenberg & Stern, 1971, p. 438)

                                                 18
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

Each conflict situation is interpreted by channel members based on the history of
their relationship, i.e. if conflict frequently occurs in the channel relationship, each
new conflict situation will be judged by a channel member as if its counterpart is
incompetent, operates in bad faith and so on (Coughlan et al., 2001). One of the
characteristics of dysfunctional conflict is that, as time goes on, it is difficult to say
what the conflict is about (Mack & Snyder, 1957). A positive relationship history,
on the contrary, creates a positive future, since a conflict incident will be deem-
phasised or interpreted tolerantly (Coughlan et al., 2001).

Four questions should be answered by management in order to get a better under-
standing of which channel conflicts are really dangerous: 1) Are the channels really
serving the same customers? 2) Do channel members mistakenly believe the channels are com-
peting when they actually are benefiting from one another? 3) Is the deteriorating profitability
of a complaining channel really the result of another channel’s progress? and 4) Will a chan-
nel’s decline necessarily harm the company’s profits? (Bucklin et al., 1997)
Are the channels really serving the same customers? What first may seem to be channel
conflict might instead be an opportunity to grow by reaching previously un-served
customers (ibid.). In order to find out whether this is the case, managers should de-
termine how much revenue the company has in conflict; revenue is in conflict
whenever two or more channels simultaneously attempt to sell the same product to
the same customer (Moriarty & Moran, 1990). As a rule of thumb, destructive be-
haviour will occur when 10–30 percent of revenue is in conflict (ibid.)

Do channel members mistakenly believe the channels are competing when they actually are
benefiting from one another? (Bucklin et al., 1997) New channels can seem to be in
conflict when they actually are expanding product usage or building brand support.
In the beginning, Nike’s opening of its NikeTown store in downtown Chicago
was considered a major threat by resellers carrying Nike’s products. But this move
probably was the reason for increased sales across all channels (ibid.).

Is the deteriorating profitability of a complaining channel really the result of another channel’s
progress? (Bucklin et al., 1997) Selecting the right reseller within a channel is often
as important as determining which channels to use. When a channel is not able to
compete any longer, poor operations, instead of conflict, may be the real cause.
Therefore, when a weak reseller is the only one complaining about conflict, the
manufacturer should assess the likelihood that its business will fail, and, if so, how
much revenue that would cost. Thereafter, the manufacturer should decide
whether to support the threatened reseller. If the decision is not to support the re-
seller, management must develop a migration strategy to replace lost profits by us-
ing other, more viable, resellers. To prevent becoming dependent on unsuitable
resellers, manufacturers should monitor the operations of channel partners and



                                               19
______ CHAPTER 2 ______________________________________________________________________________

work to develop their skills and capabilities. It also may help to switch partners
from time to time (ibid.).

Will a channel’s decline necessarily harm the company’s profits? (Bucklin et al., 1997)
Sometimes economic shifts or customers’ changed preferences is the real cause of a
channel’s decline. If a channel’s deterioration is caused by changes in customer
preferences, management must prioritize the new channel without offending the
declining channel. It is especially important not to provoke the declining channel if
it continues to carry a significant volume. For instance, in the U.S., specialty pet
food producers are actively aligning with two category killers, PETsMART and
Petco. But they simultaneously support the economics of small pet shops, since the
latter still represent 60 percent of specialty food volume (ibid.).

After the above questions are answered, and a conflict is still judged to be dysfunc-
tional and a substantial amount of current or future volume passes through the of-
fended channel, manufacturers must act to soothe the situation (see Figure 2.3.). As
a rule of thumb, a channel in conflict that is not in decline and carries more than
10–15 percent of volume and/or profit needs attention (ibid.).

                                Importance of threatened channel in terms of current or poten-
                                                  tial volume or profitability
                                           High                             Low

                      High     Act to avert or address con-      Allow threatened channel to
                   (“fire”)                flict                           decline
   Prospect of de-
   structive conflict
                              Look for opportunities to re-
                    Low        assure threatened channel                 Do nothing
               (“smoke”)        and leverage your power



Figure 2.3 Decision-Making Framework (Bucklin, Thomas-Graham & Webster,
1997, p. 40)
According to Moriarty and Moran (1990), in order to assess the magnitude of the
conflict, management must ask these questions: How much of management’s time is
devoted to dealing with channel conflict? Where does the channel conflict occur? How do
channel members and customers respond to it? Management needs to worry when it de-
votes a good deal of time handling customer complaints or trying to settle internal
disputes (ibid.). McDonald (1999) states further that the clearest sign that channel
conflict is excessive is a higher than normal turnover rate of personnel and business
partners. Also, by the time customers become aware of the conflict, it has really
become serious.


                                                  20
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

Brown and Day (1981) measured channel conflict in a manufacturer-dealership
channel. Coughlan et al. (2001) assert, based on their research, that in order to di-
agnose the true level of channel conflict, management has to gather four kinds of
information: counting up the issues, importance, frequency of disagreement and intensity of
dispute.

Step 1. Counting Up the Issues. What are the major relevant issues between two par-
ties in their channel relationship? They should be considered even if they are not
in dispute at the moment, so as to chart the major aspects of the channel relation-
ship. Examples of important issues might be inventory, allocation, and delivery of
products (ibid.).

Step 2. Importance. For each issue, it is necessary to assess how important it is to the
reseller. This can be done either by using one’s own judgment or by asking the re-
seller. For instance, resellers may be asked to indicate on a scale of zero to ten (very
unimportant to very important) how important each issue is to their profitability
(ibid.).

Step 3. Frequency of Disagreements. For each issue, it is necessary to evaluate and per-
haps collect data on how often the parties disagree over this issue. For instance, re-
sellers may be asked to recall discussions with the manufacturer over an issue dur-
ing the last year and to indicate on a scale of zero to ten (“never” to “always”)
how frequently those discussions involved disagreements (ibid.).

Step 4. Intensity of Dispute. For each issue, it is necessary to evaluate and perhaps
collect data on how much the two parties differ on the issue. For instance, resellers
may indicate on a scale of zero to ten (“not very intense” to “very intense”) how
strongly they disagree during a typical discussion with the manufacturer about the
issue (ibid.).

These four kinds of information should then be combined to form an index of
manifest conflict for each issue:
             N
Conflict =         Importancei x Frequencyi x Intensityi
             i=1


Adding the product of all the issues collected in Step 1 forms an index of conflict.
These estimates can be compared across resellers to assess where the most serious
conflict occurs and why. This simple formula gives a good picture of the serious-
ness of the conflict, since it allows the diagnostician to pinpoint exactly where and
why the two parties are in opposition. In general, the more issues involved in a
channel relationship, the greater the risk for conflict. There is no real conflict over
any issue, though, if the opinions of the two parties rarely differ (low frequency),

                                             21
______ CHAPTER 2 ______________________________________________________________________________

the issue is regarded to be of no great concern (low importance), or the two parties
do not disagree much on the issue (low intensity). That is, if any of these compo-
nents is low, the issue is not a real source of conflict, represented by the fact that
multiplying by zero creates a product of zero (ibid.).

Magrath and Hardy ((1988) ref. to in Webb, 2002, p. 97) say that conflict is meas-
ured empirically by the frequency and intensity of disagreements, weighted by the
importance of the issue. Conflict frequency can range from minor disputes and occa-
sional disagreements to long, drawn-out, bitter relations. The intensity of channel
conflict, on the other hand, can range from easily forgotten minor flare-ups to ma-
jor disagreements resulting in terminations or lawsuits. Conflict importance pro-
vides a third dimension. Together, the combined frequency, intensity and impor-
tance of disagreements makes it possible to classify the level of conflict as either
low, medium, or high (ibid.).

Once management decides that the existing channel conflict is potentially danger-
ous, it has to decide what to do about it (Bucklin et al., 1997).

2.1.4     Minimising Channel Conflict
Several solutions to the channel conflict problem have been suggested in the litera-
ture. These approaches can be categorized as institutionalised, pricing, product version,
brand name, and compensation.

Institutionalised Approaches to Minimise Channel Conflict
Institutionalised approaches refers to mechanisms that defuse disputes before they
harden into hostile attitudes (Coughlan et al., 2001). Joint membership in trade associa-
tions is one such approach. Another is exchange-of-personnel programs, which means
that personnel can be traded for a specified time period; thereby, channel members
will be encouraged to develop solutions rather than engage in conflict. Co-optation,
the process of absorbing new ideas into the leadership or policy-making structure
of an organisation (Stern & Gorman, 1969), is another mechanism for encouraging
channel cooperation by, for instance, bringing representatives of different channels
together to vent complaints and suggestions (Coughlan et al., 2001). The danger
with the two latter approaches, though, is that each side might unintentionally re-
veal sensitive information. Third-party mechanisms, i.e. mediation and arbitration, pre-
vent conflict from arising or keep conflict within bounds (ibid.). Mediation is a
process whereby parties get help to resolve their disputes. A third party, the media-
tor, attempts to settle a dispute by, among other things, getting participants to talk
to each other, helping them understand their problems, and suggesting possible so-
lutions. The mediator typically has a fresh view of the situation and may perceive
opportunities that those involved in the conflict cannot (Carver & Vondra, 1994;
Coughlan et al., 2001). In arbitration, on the other hand, a third party makes a deci-
sion on how to solve the conflict. This solution is final and binding for both parties

                                              22
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

(Coughlan et al., 2001). Webb (1997), on the other hand, recommends that com-
panies use a specified protocol for communication when problems do arise. Strong
relational norms also can be a way to prevent channel conflict (ibid.). Heide and
John (1992) have identified three dimensions of relational norms that seem to be
especially important: flexibility, information exchange and solidarity. Flexibility refers to
the willingness to adapt to changing circumstances; information exchanges implies the
expectation that parties will proactively provide useful information to channel
partners; solidarity means that channel members mutually try to build the relation-
ship (ibid.).

Pricing Approaches to Minimise Channel Conflict
Another suggested solution to the channel conflict problem is to deliberately set
prices higher on the Internet than in retail stores, thereby raising awareness of the
brand without really competing with the company’s retailers. This approach is util-
ized by the toy manufacturer Mattel, which deliberately sets prices 15 percent
higher on the Internet than in retail stores (Webb, 2002). A similar approach is to
charge the same prices in all channels but to add shipping and handling fees in the
online channel, which in the end causes online customers to pay a higher price.
Nike Inc., manufacturer of sneakers and other athletic gear, is an example of this
approach, as it lets its customers purchase online, but at full retail price plus ship-
ping and handling fees (King, 1999).

Offering the same products in all available marketing channels at the same price is
another suggested approach to avoiding channel conflict (Ancarani & Shankar,
2004). Omnitel Vodafone, for instance, offers its prepaid telephone credit cards in
its traditional channels as well as on its web site, under the same conditions
(Ancarani, 2002). King (1999) and Urban (2004) state further that taking business
away from channel partners, such as retailers, by making a product available
through the Internet at a lower price causes channel conflict. This conclusion is
supported by Steinfield et al. (2002), who in their research of 18 Dutch click-and-
mortar businesses found that, almost without exception, management stated the
importance of resisting the temptation to bypass existing channels, or else channel
conflict be the result. Besides, today’s shoppers want to view and touch products in
a store and then purchase them on the Internet (Ashcraft, 2001), or, conversely, re-
search products online and thereafter purchase them in a physical store (Forrester,
2004). They also want the possibility of purchasing articles on the Web or through
the catalogue, and then return or exchange them at a conventional store. There-
fore, offering clothes, for instance, at different prices in a company’s various mar-
keting channels irritates customers (Ashcraft, 2001).

Nevertheless, some businesses offer lower prices online than through their other
marketing channels. Cortese and Stepanek (1998), for instance, state that airlines
mainly use the Internet as a way to sell unfilled seats, as they routinely send out e-

                                             23
______ CHAPTER 2 ______________________________________________________________________________

mail alerts of last-minute fare specials. Other authors (e.g., Baker, Marn & Zawada,
2001; Pitt, Berthon, Watson & Ewing, 2001; Ancarani, 2002; Kung, Monroe &
Cox, 2002; Steinfield et al., 2002) suggest that another reason for the price differ-
ences is that the airline and banking industries have been able to lower the costs for
conventional transactions (i.e. travel agent commissions, booking fees, etc). There-
fore, they argue, it is hardly surprising that travel businesses normally offer online
booking discounts, and that banks normally offer lower transaction fees and better
interest rates for customers who conduct routine banking transactions online. Ex-
amples of other firms that charge substantially lower prices for identical products
on the Internet are Broderbound Software and Barnes & Noble (Zettelmeyer,
2000). Broderbound Software gives all customers who order on the firm’s web site
a US$ 5 discount per order on any of the company’s products. Barnes & Noble, at
its physical stores, offers hardcover New York Times bestsellers at a 30 percent dis-
count off the publisher’s suggested price, softcover New York Times bestsellers at a
20 percent discount, and other hardcover books at a 10 percent discount; however,
other softcover books are not discounted. On the Internet, though, Barnes & No-
ble sells all hardcover books at a 30 percent discount and all softcover books at a 20
percent discount (ibid.). Indeed, Brynjolfsson and Smith (2000), in their compari-
son of CDs and books sold through the Internet channel and through conventional
retailers, found that Internet retailers charge lower prices than conventional retail-
ers, whether prices are considered by themselves or include shipping fees, etc.
Friberg, Ganslandt and Sandström (2000) also found that books and CDs are sold
cheaper on the Internet (on average 15 percent lower); however, they found, in
contrast to the previous study, that when a single item is purchased online, the to-
tal cost for the item, including shipping fees, is the same as if the item were bought
in a conventional store.

Smith et al. (1999) suggest that companies could also avoid channel conflict by sell-
ing excess capacity through the Internet via auction. Airlines and hotels, for in-
stance, can sell excess capacity in this way. Since the Internet channel then has an
associated price uncertainty, customers will regard the products as different from
those sold through physical channels (ibid.). Of course, auction pricing will in
some cases lead to customers paying higher prices online (Lee, 1998).

Product Version Approaches to Minimise Channel Conflict
Multiple products or versions give management the opportunity to target different
market segments through different channels (Bucklin et al., 1997; King, 1999;
Smith et al., 1999; Coughlan et al., 2001; Ancarani, 2002; Kung et al., 2002;
Webb, 2002). Actually, the most obvious source of price dispersion, i.e. different
prices charged for the same good at the same time, is product versions, since if the
compared products differ in some way, customers will not be surprised if the prices
also are different (Smith et al., 1999). By using multiple product versions, compa-
nies avoid offering the same product for different prices in different channels (e.g.,

                                              24
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

Ancarani, 2002). Procter & Gamble does this, since the products it sells through its
Internet channel are not available in its traditional channels (Ancarani, 2002). Mat-
tel, the toy manufacturer, is another example of a company that does this, since
certain hot items are not offered at all on its web site (Webb, 2002). An additional
example is Levi Strauss & Co., which became an e-commerce pioneer in 1998
when it launched Levi.com and offered online customers custom-made jeans de-
livered to their doorstep (Gilbert & Bacheldor, 2000). In the beginning, the chan-
nel partners were invited to sell apparel online as well, but in May 1999, Levi
Strauss & Co. stated that it alone would sell its goods online (Collett, 1999). How-
ever, just a year later, the company ceased selling online and turned all Internet
sales opportunities back to retailers with Web stores, apparently because its rela-
tions with its retailers needed to be strengthened (Gilbert & Bacheldor, 2000).
However, the product variation does not have to be that substantial; just by intro-
ducing minor product modifications, and by using different names and/or num-
bers, manufacturers can create the illusion of differentiation (Bucklin et al., 1997).
This approach, however, might not work in the Internet environment, since many
Internet customers use price and feature comparison web sites instead of relying on
model numbers (ibid.).

Another approach is to offer product bundles (Alba et al., 1997). The rationale for
product bundles is to offer some complementary products that customers value and
that are only available separately elsewhere, if at all. A company could, for instance,
offer complementary recipes when selling wine online. Although the wine could
be bought elsewhere, the customer will be ensured some satisfaction when serving
the wine with a particular meal (ibid.).

Brand Name Approaches to Minimise Channel Conflict
The use of a different brand name when offering products online is suggested as a
way to minimise channel conflict (Bucklin et al., 1997; Webb, 1997; Coughlan et
al., 2001; Steinfield et al., 2002). One of the goals of this approach is to compete
with low-price competitors, while at the same time continuing to serve the high-
price segment with a high-end product. In most cases, the price difference be-
tween the brands is between 30 and 40 percent (Hilleke & Butscher, 1997). A
Dutch bicycle dealer, for instance, has developed a separate online brand that is
cheaper than the brands sold in its shop, since the business’s costs are lower for
online purchases (Steinfield et al., 2002). By using a different brand name, competition
between the channels might be reduced (Alba et al., 1997).

However, even if an e-tailer, in order to decrease competition, chooses to introduce its
own private label, i.e. a brand that it sells exclusively, such an approach could lose its effec-
tiveness due to the use of comparison sites by online customers (ibid.). Moreover, a brand
is a search attribute that assures customers a certain level of product quality (Alba et al.,
1997). Therefore, the choice of whether or not to use different brands in different


                                               25
______ CHAPTER 2 ______________________________________________________________________________

marketing channels is largely a choice between flexibility and trust (Gulati &
Garino, 2000). When extending an existing brand to the Internet, management
loses flexibility, since a shared brand name makes it more difficult to use the Inter-
net to target a different customer segment. It also makes it difficult to offer differ-
ent products at different prices online, since such an offer might leave customers
confused and distrustful. On the other hand, if the brand is both recognized and
respected, extending it to the Internet gives instant credibility to a web site, a
competitive advantage that disappears when using a separate brand name (ibid.).

Compensation Approaches to Minimise Channel Conflict
Control of funds offers management a powerful tool to encourage cooperative be-
haviour (Tuite, 1972). Indeed, considerable field evidence indicates that economic
incentives are the best way to resolve conflicts (Coughlan et al., 2001). Friedman
and Furey (1999) go so far as to state that restructuring the assignment of revenue
credit is the easiest way to avoid channel conflict. In other words, in order to
minimise dysfunctional channel conflict, it is important to fairly compensate offline
channels (Gilbert & Bacheldor, 2000).

Channel conflict within a company can be handled by a corporate accountant who
allocates costs and revenues, and a human resource manager who administers com-
pensation (Coughlan et al., 2001). Channel conflict between interdependent com-
panies is not so easy to settle. Suppliers have not paid enough attention to compen-
sation mechanisms. The growth of e-commerce will make this a more serious
problem, since free-riding will become extremely common. To cope, suppliers and
resellers will be forced to develop new ways of doing business, such as adding flat
payments (the equivalent of salary), fees for services (the equivalent of an expense
account), or overrides, whereby one channel member is automatically compen-
sated for sales made by another (the equivalent of a group bonus) (ibid.).

To avoid channel conflict when a channel is declining, manufacturers could con-
sider improving the economics of the channel, which often improves its perform-
ance at the same time. For instance, a reseller could be offered rebates if it satisfies
certain requirements for value-added service, or margins could be adjusted be-
tween products to reflect the services offered by distributors (Bucklin et al., 1997).

Some businesses offer the same prices online as their retailers do, with the excep-
tion to only offer discounts through the retailer channel, since they want to reward
customers who make the effort to come to their stores (King, 1999; Webb, 2002).
Estèe Lauder, the cosmetics manufacturer, sells its Clinique products in this way.
That is, Estèe Lauder sells directly to online customers, but it does not offer the
kinds of promotions that its retailers, such as Macy’s, run several times a year,
whereby each purchase greater than US$ 15 results in several free products (King,
1999).

                                              26
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

When channel members, due to the addition of a new channel, no longer perform
all channel functions, they cannot expect to receive a traditional margin or com-
mission (Coughlan et al., 2001). Instead, they should be compensated only for the
functions they perform (ibid.). Several companies seem to use this approach. When
Ducati sold its motorcycles online, its dealers received a commission in spite of
their minimal involvement in the sales process (cf. Jelassi & Leenen, 2003). The
amount of the commission, though, was almost half the usual one, since the dealers
did not assume any marketing or inventory costs (ibid.). Sun Microsystems does
not give its customers access to the online Sun Store unless they already have a
sales representative, who then receives a commission on these sales (Tsay &
Agrawal, 2004). Orders placed at the web site of Ethan Allen Interiors, Inc. are
filled at the nearest retail store, which receives 70 percent of the profits in ex-
change (ibid.). Former Compaq, finally, when selling personal computers directly
to end customers, compensated its resellers with an estimated 6 percent commis-
sion for referring small business customers (Girishankar, 1998).

2.2 Research Questions & Frame of Reference


I   n this section, the research questions will be developed and discussed, based on
    the research purpose and the literature review. Finally, a conceptual frame of
    reference, which will guide the data collection, will be developed.

2.2.1     Research Questions
In chapter one it was concluded that the Internet is a new marketing channel
which offers businesses several opportunities, including the possibility to increase
sales growth through extended market coverage, and the possibility to adapt to the
needs of more customers. When companies add the Internet channel to existing
marketing channels, channel conflict seems to be the greatest concern (Gilbert &
Bacheldor, 2000). Although not all channel conflict is dangerous, it can soon turn
into harmful behaviour between two interdependent parties (Stern & El-Ansary,
1988). Such dangerous conflict is referred to as dysfunctional conflict in the literature
(cf. Gattorna, 1978) and will, in the end, lead to declining profitability for the
company (e.g., Moriarty & Moran, 1990). Accordingly, the research purpose of
this study was stated as follows:

   To explore and describe managers’ perspectives on conflict in multiple marketing chan-
                            nels, with a focus on the Internet


This research purpose is further developed into three research questions.

Research Question One
According to the literature (e.g., Smith et al., 1999), channel conflict will occur
when the Internet is added to existing marketing channels. Three causes for this

                                             27
______ CHAPTER 2 ______________________________________________________________________________

conflict have been described by Coughlan et al. (2001): goal incompatibility, domain
dissensus and different perceptions of reality. These are the same causes that Stern and
Heskett (1969) described in their conceptual paper. However, when testing these
causes empirically, Rosenberg and Stern (1971) were not able to attain statistical
significance for all the conflict causes for each of their researched channel relation-
ships. In addition, these causes were identified long before the Internet was in-
vented. When empirically researching the causes of channel conflict in multiple
marketing channels, including the Internet, Webb (1997) found indications that
other causes of conflict had more influence on conflict than those mentioned
above. Therefore, it becomes important to investigate the causes of channel con-
flict in multiple marketing channels, including the Internet, from a management
perspective. Thus, the following research question:
    How can the causes of channel conflict in multiple marketing channels, including the
                                  Internet, be described?


Research Question Two
Some authors state that channel conflict is not necessarily negative and that it in
fact can have positive implications for a business (e.g., Stern & El-Ansary, 1988;
Moriarty & Moran, 1990). Furthermore, with few exceptions (cf. Bucklin et al.,
1997; McDonald, 1999), little has been written about when channel conflict be-
comes dysfunctional or dangerous. Accordingly, to get the full picture of channel
conflict in marketing channels, it is also important to examine the positive aspects
of channel conflict (Menon, Bharadwaj & Howell, 1996). Therefore, it becomes
important to get management’s view on channel conflict: if and/or when it is re-
garded as something positive for the company, and if and/or when it is regarded as
having dysfunctional consequences.

As for how to measure the severity of the channel conflict, a number of methods
have been suggested in the literature, ranging from very structured methods, e.g.,
finding out which major issues are involved in the conflict, weighted by impor-
tance, frequency and intensity (cf. Coughlan et al., 2001), to more informal meth-
ods, such as evaluating customers’ and channel members’ responses to the conflict
(cf. Moriarty & Moran, 1990). Do managers use any of the methods suggested in
the literature to measure channel conflict, or do they utilize some other way to as-
sess the seriousness of conflict?
Based on the above discussion, the second research question is as follows:
  How can the seriousness of channel conflict in multiple marketing channels, including the
                                  Internet, be described?




                                              28
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

Research Question Three
If management regards the channel conflict as dangerous, it has to decide how to
handle it (Bucklin et al., 1997). One conflict-reducing category is that of institu-
tionalised approaches, which refers to mechanisms that defuse disputes before they
harden into hostile attitudes. The suggested institutionalised approaches range from
exchange-of-personnel programs and third-party mechanisms to the building of relational
norms. Even though these approaches might help prevent or reduce channel con-
flict, they do not come without problems. For instance, as soon as parties from dif-
ferent companies get too close together, there is a risk of unintentionally revealing
sensitive information (Coughlan et al., 2001). Nevertheless, relational norms can be
effective in preventing channel conflict (Heide & John, 1992). So, how can the in-
stitutionalised approaches utilized by management be described?

Regarding pricing approaches, different authors suggest different strategies for mini-
mising channel conflict when adding the Internet, ranging from identical prices in all
marketing channels (e.g., Ancarani, 2002) to higher online prices (e.g., Webb, 2002).
Unfortunately, managers do not get much help from the existing literature regard-
ing the situations in which the different price levels are best utilized.

Multiple products, versions (Bucklin et al., 1997; Ancarani, 2002), product bundles
(Alba et al., 1997) and using a different brand name when offering products online
(e.g., Steinfield et al., 2002) also have been suggested as ways to minimise channel
conflict, since, among other things, they give management the opportunity to offer
different prices through different marketing channels (e.g., Hilleke & Butscher,
1997; Ancarani, 2002). It is suggested that the product variation can consist of only
minor modifications. At the same time, it is not clear if these approaches would
work in the Internet environment, due to the use of price and feature comparison
web sites by customers (cf. Bucklin et al., 1997). In addition, by using a different
brand name, the company’s product is deprived of the instant credibility that a
well-known, well-regarded brand name offers; this might be another disincentive
to applying a different brand name online (Gulati & Garino, 2000).

The development of compensation approaches has been disregarded by companies
(Coughlan et al., 2001). The growth of e-commerce, though, makes such devel-
opment even more important, since so called free-riding will increase greatly
(ibid.). Therefore, it becomes important to see if companies introduce some kind
of compensation when adding the Internet, and if so, how this works. Further-
more, in the literature it is stated that compensation is the best approach to mini-
mising channel conflict (Friedman & Furey, 1999; Coughlan et al., 2001). Is this
true when adding the Internet marketing channel, or does management judge
other approaches to be better?




                                          29
______ CHAPTER 2 ______________________________________________________________________________

As pointed out by Mohr and Nevin (1990), good communication is necessary to
achieve the needed coordination among channel members. However, managers do
not get much help from the literature on how this should be accomplished. There-
fore, how can the communication approaches that companies use in multiple mar-
keting channels be described?

As can be seen from the above reasoning, there are different opinions in the litera-
ture regarding which conflict-reducing approaches to use, and how those ap-
proaches should be designed to achieve the purpose. So, which approaches does
management utilize in order to minimise channel conflict in multiple marketing
channels, including the Internet, and how are these approaches designed?

This leads to the following research question:

  How can the approaches that management utilizes in order to minimise channel conflict
          in multiple marketing channels, including the Internet, be described?


2.2.2      Developing a Conceptual Frame of Reference
The purpose of this section is to build an appropriate frame of reference, based on
the literature review and the presented research questions, for the study of channel
conflict when adding the Internet. Since no empirical research is possible without
clarifying how the researcher is to decide what constitutes evidence of the phe-
nomenon to be studied (Potter, 1996), the concepts that will be included in the
frame of reference will be defined below, together with a description of how the
concepts will be measured.

Causes of Channel Conflict
The first part of the frame of reference focuses on the causes of channel conflict in
multiple marketing channels, including the Internet. As already stated, what
Coughlan et al. (2001) claim are the major causes of channel conflict when adding
the Internet are the same as those described in a conceptual article by Stern and
Heskett (1969). Several other scholars have also described the causes of channel
conflict, although most of their articles were written before the Internet existed,
and the majority of those that include the Internet marketing channel are concep-
tual. In fact, only one empirical study on the causes of channel conflict in multiple
marketing channels, including the Internet, was found in the literature review (cf.
Webb, 1997).

Nevertheless, there seems to be considerable agreement in the channel conflict lit-
erature that incompatible goals among channel members is a cause of conflict (e.g.,
Stern & Heskett, 1969; Schmidt & Kochan, 1972; Kochan et al., 1975; Perry &
Levine, 1976; Etgar, 1979; Coughlan et al., 2001).

                                              30
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

There also seems to be considerable agreement that domains dissensus, such as differ-
ent channels competing to reach the same customers, is a cause of conflict (Stern &
Heskett, 1969; Reve & Stern, 1979; Magrath & Hardy, 1987; Bucklin et al., 1997;
Coughlan et al., 2001). It is true that Webb (1997) discusses coordination as one of
the most influential causes of conflict. However, the aspect of coordination is in-
cluded in the concept of domain dissensus, since the four critical elements of a
channel domain are the population to be served, the territory to be covered, the
functions or tasks to be performed, and the technology employed (cf. Stern & El-
Ansary, 1992).

When it comes to different perceptions of reality, though, it seems that this cause
of conflict should be replaced by inadequate communication. As pointed out by Etgar
(1979), there is constant communication in marketing channels. When this com-
munication does not work properly, misunderstandings will occur, which will lead
to frustration among channel members (ibid.). Accordingly, if there are communi-
cation problems within a marketing channel, channel members will perceive the
reality differently. Using this viewpoint when analysing the table derived from
Rosenberg and Stern’s (1971) empirical research (see Appendix 1), where different
causes of conflict are classified, it becomes clear that what is labelled different percep-
tions of reality is not really a cause; instead, it is an issue that derives from inadequate
communication. If looking at the table from this perspective, it is possible to catego-
rise some of their miscellaneous issues as caused by inadequate communication, al-
though this is impossible to confirm with certainty without access to the original
research data. Furthermore, when looking closer at Coughlan et al.’s (2001) discus-
sion on differing perceptions of reality as a cause of conflict in an Internet context,
it seems apparent that their example really is a matter of inadequate communica-
tion. That is, in the survey they refer to, online customers responded that they
were able to purchase products online that were not easily accessible to them oth-
erwise. Thus, according to Coughlan et al. (2001), the manufacturer was not steal-
ing sales from its bricks-and-mortar resellers when selling online, even though the
bricks-and-mortar resellers probably thought they were. It should have been possi-
ble to pass the results from this survey on to the resellers in order to defuse the
conflict situation. In fact, not doing so is nothing but a matter of inadequate com-
munication. Moreover, Webb (1997) found indications of communication to be
one of the primary causes of channel conflict in multiple marketing channels, in-
cluding the Internet.

Accordingly, the three causes of channel conflict that will be included in the frame
of reference are goal incompatibility, domain dissensus and inadequate communication.
The conceptualisation and the measures that will be used in this research to meas-
ure the causes of channel conflict when adding the Internet are presented in Table
2.1.



                                            31
______ CHAPTER 2 ______________________________________________________________________________

Table 2.1 Measures of the Causes of Channel Conflict
 Conceptual     Concept            Conceptualisation          Measure
 Area
                                                              Assessment of the importance of
                                   Conflict that arises be-
                Goal Incompati-                               incompatible goals among chan-
                                   cause different channel
                bility                                        nel members as a cause of con-
                                   members have incom-
                                                              flict (as perceived by the respon-
                                   patible goals
                                                              dents)
                                   Conflict that arises be-   Assessment of the importance of
 Causes of                         cause one channel          one channel member being by-
                Domain Dissen-
 Channel                           member is bypassed by      passed by another channel mem-
                sus
 Conflict                          another channel mem-       ber as a cause of conflict (as per-
                                   ber                        ceived by the respondents)
                                                              Assessment of the importance of
                                   Conflict that arises be-
                                                              inadequate communication
                Inadequate         cause communication is
                                                              within the marketing channel as
                Communication      inadequate within the
                                                              a cause of conflict (as perceived
                                   marketing channel
                                                              by the respondents)

Assessing the Seriousness of Channel Conflict
The second part of the frame of reference concerns the assessment of the serious-
ness of channel conflict. A number of questions that can be asked in order to assess
the seriousness of the conflict have been found in the literature. However, the
word seriousness should not be misinterpreted as the equivalent of dysfunctional,
since, according to the literature, conflict also can be functional (e.g., Stern & El-
Ansary, 1988). The conceptualisation and the measures that will be used in this re-
search to capture the seriousness of channel conflict when adding the Internet are
presented in Table 2.2.

Moriarty and Moran (1990) suggest that management should assess how much of
its time is spent dealing with channel conflict. Since all the issues connected to this
question, as described by the authors, have reference to channel members’ and cus-
tomers’ responses, this question is included in those categories of questions. The
remaining questions can be divided into five different categories: importance of chan-
nel, revenue in conflict, conflict issues, response of channel members and response of custom-
ers.

Importance of Channel: Will a channel’s decline necessarily harm the company’s
profits (Bucklin et al., 1997)?

Revenue in Conflict: Are the channels really serving the same customers? (Moriarty
& Moran, 1990; Bucklin et al., 1997)




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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

Table 2.2 Measures of the Seriousness of Channel Conflict
 Conceptual      Concept           Conceptualisation              Measure
 Area
                                                                  Assessment of the importance
                                   The relative importance of a
                 Importance of                                    of the different marketing
                                   marketing channel, from a
                 Channel                                          channels to the company (as
                                   manufacturer perspective
                                                                  perceived by the respondents)
                                                                  Assessment of respondents’
                                   The extent to which a com-
                                                                  views on the company’s differ-
                 Revenue in        pany’s different marketing
                                                                  ent marketing channels serving
                 Conflict          channels are serving the
                                                                  the same customers (as per-
                                   same customers
                                                                  ceived by the respondents)
 Assessing the                                                    Assessment of the major con-
 Seriousness                       The issues involved in the     flict issues involved in the
                 Conflict Issues
 of Channel                        channel conflict               channel relationship (as per-
 Conflict                                                         ceived by the respondents)
                 Response of                                      Assessment of channel mem-
                                   Channel members response
                 Channel                                          bers response to the conflict (as
                                   to the conflict
                 Members                                          perceived by the respondents)
                                                                  Assessment of customers’ re-
                 Response of       Customers’ response to the     sponses to the channel conflict
                 Customers         channel conflict               (as perceived by the respon-
                                                                  dents)

Conflict Issues: What major conflict issues are involved in the channel relationship
(Brown & Day, 1981; Coughlan et al., 2001)? The conflict issues that have been
identified by previous empirical research of a multiple marketing channel system,
including the Internet, are pricing, product availability, customer assignment, promotion,
resource allocation and reward system (cf. Webb, 1997). There are indications that
pricing is the largest conflict generator in multiple marketing channels (ibid.).

Response of Channel Members: How do channel members respond to the conflict
(Moriarty & Moran, 1990; McDonald, 1999)?

Response of Customers: How do customers respond to the channel conflict (Moriarty
& Moran, 1990; McDonald, 1999)?

Approaches to Minimise Channel Conflict
The third part of the frame of reference concerns different approaches that can be
used to minimise channel conflict in multiple marketing channels, including the
Internet. Six different categories of conflict-reducing approaches will be included
in the frame of reference: institutionalised, pricing, product version, brand name, compen-
sation and communication approaches. The conceptualisation and the measures that
will be used in this research to capture the approaches used by management to
minimise channel conflict when adding the Internet are presented in Table 2.3.


                                                33
______ CHAPTER 2 ______________________________________________________________________________

Table 2.3 Measures of the Conflict Reducing Approaches
 Conceptual     Concept             Conceptualisation                Measure
 Area
                                    Institutional mechanisms,
                                                                     Description of the institu-
                                    such as exchange-of-
                                                                     tional mechanisms utilized by
                                    personnel, third-party
                Institutionalised                                    companies to defuse dis-
                                    mechanisms, and relational
                Approaches                                           agreements before they esca-
                                    norms, intended to defuse
                                                                     late into conflicts (as de-
                                    disagreements before they
                                                                     scribed by the respondents)
                                    escalate into conflicts
                                                                     Description of the price levels
 Conflict                           Price levels used in different   used in different marketing
                Pricing
 Reducing                           marketing channels to            channels to minimise channel
                Approaches
 Approaches                         minimise channel conflict        conflict (as described by the
                                                                     respondents)
                                    Offering a product or prod-
 Conflict                                                            Description of companies’ use
                Product             uct bundle that is not avail-
 Reducing                                                            of product version approaches
                Version             able through all the com-
 Approaches,                                                         (as described by the respon-
                Approaches          pany’s marketing channels,
 contd.                                                              dents)
                                    to minimise channel conflict
                                    Using a different brand
                                                                     Description of companies’ use
                Brand Name          name when offering prod-
                                                                     of brand name approaches (as
                Approaches          ucts online to minimise
                                                                     described by the respondents)
                                    channel conflict
                                                                     Description of the compensa-
                                    Compensating offline chan-
                Compensation                                         tion approaches used by
                                    nels for sales made online,
                Approaches                                           companies (as described by
                                    to minimise channel conflict
                                                                     the respondents)
                                    Communication mecha-
                                                                     Description of the communi-
                                    nisms that enhance the ef-
                Communication                                        cation approaches used by
                                    fectiveness of communica-
                Approaches                                           companies (as described by
                                    tion within multiple mar-
                                                                     the respondents)
                                    keting channels

Institutionalised approaches refers to mechanisms, such as exchange-of-personnel,
third-party mechanisms and relational norms, intended to defuse disagreements be-
fore they escalate into conflicts (Coughlan et al., 2001).

Pricing approaches: Some authors (King, 1999; Webb, 2002) state that the solution to
the channel conflict problem is to set prices higher online. Other authors state that
products cannot be made available on the Internet at a lower price than what the
retailer offers, if a company wants to be able to avoid channel conflict (King, 1999;
Urban, 2004); others state that prices should be identical in all marketing channels
(Ashcraft, 2001; Ancarani, 2002; Ancarani & Shankar, 2004), whereas others
(Baker et al., 2001; Pitt et al., 2001; Ancarani, 2002; Kung et al., 2002; Steinfield
et al., 2002) have identified industries (financial services, airlines) where prices are
deliberately set lower online. This strategy, though, has not been recommended as a


                                                34
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

way to avoid channel conflict. Auction pricing, on the other hand, has been sug-
gested for this purpose, since the Internet auction channel involves price uncer-
tainty, which causes customers to regard the product as different from products
sold through the physical channel (Smith et al., 1999). In other words, auction
pricing offers companies an opportunity to sell products cheaper online without
causing channel conflict (ibid.). At the same time, auction pricing also can lead to
customers paying higher prices online (Lee, 1998). Accordingly, three pricing ap-
proaches, all of which supposedly can be used to minimise channel conflict, have
been identified from the literature review: higher online prices, identical prices in all
marketing channels and auction pricing. A summary of these pricing approaches can be
found in Table 2.4.
Table 2.4 Conflict Reducing Pricing Approaches when Adding the Internet
 Pricing Approach      Bibliography                              Product/Service Offered
 Higher Online         King (1999); Webb (2002)                  Toys; Sneakers and other Ath-
 Prices                                                          letic Gear
 Identical Prices in   King (1999); Ashcraft (2001); Ancarani    Prepaid Telephone Credit
 all Marketing         (2002); Steinfield et al. (2002); Anca-   Cards; Clothes
 Channels              rani & Shankar (2004); Urban (2004)
 Auction Pricing        Smith et al. (1999)                      Airlines; Hotels

Product version approaches concerns the fact that an offered product or product bun-
dle is not available through all the company’s marketing channels (e.g., Bucklin et
al., 1997; King, 1999; Ancarani, 2002; Kung et al., 2002).

Brand name approaches refers to the use of a different brand name when offering
products online (e.g., Bucklin et al., 1997; Steinfield et al., 2002).

Compensation approaches refers to compensation of offline channels for sales made
online (e.g., Webb, 2002; Jelassi & Leenen, 2003; Tsay & Agrawal, 2004).

Communication approaches refers to communication mechanisms that enhance the ef-
fectiveness of communication within multiple marketing channels (Webb, 1997).

Unique Characteristics of the Internet
The final ingredient of the frame of reference refers to the unique characteristics of
the Internet, i.e. those not shared by other marketing channels. Several authors
have claimed that the addition of the Internet marketing channel will cause conflict
(e.g., Smith et al., 1999). However, whether the unique characteristics of the
Internet contribute to channel conflict, or whether they can be used to minimise
channel conflict, is not clear from the literature. Therefore, these aspects also will
be taken into account when conducting the empirical research.



                                              35
______ CHAPTER 2 ______________________________________________________________________________

2.2.3      Conceptual Frame of Reference
A graphical presentation of the frame of reference helps to define what will, and
will not, be studied (Miles & Huberman, 1994). The starting point for the concep-
tual frame of reference is Rosenberg and Stern’s (1971) model of the intra-channel
conflict process, which emphasizes its major components (see Figure 2.2, p. 18). In
their model, however, nothing is mentioned about what the causes of conflict ac-
tually are, how the conflict can be assessed and so on. Therefore, the three causes
of channel conflict, i.e. goal incompatibility, domain dissensus and inadequate communi-
cation, are included in the conceptual frame of reference (see Figure 2.4).

Furthermore, the different approaches that have been suggested in order to assess
the seriousness of channel conflict, i.e. importance of channel, revenue in conflict, conflict
issues, response of channel members and response of customers, will be added to the con-
ceptual frame of reference, as well as the approaches to minimise channel conflict,
i.e. institutionalised, pricing, product versions, brand name, compensation and communica-
tion.

Additional questions will be asked in an effort to identify other conflict causes,
conflict measurement approaches, and conflict management approaches. The com-
ponents of the frame of reference labelled other represent these aspects of the re-
search.

The Internet is not depicted anywhere in the frame of reference, but since the re-
search will be concentrated on channel conflict in multiple marketing channels with
a focus on the Internet, all questions deriving from the frame of reference will con-
sider the impact of the Internet. However, many different variables are involved
when it comes to the performance of a company. Access to financial or behav-
ioural outcomes from the conflict process will probably be extremely difficult for
an outsider, since such information is very sensitive to the companies. Therefore,
the outcome part of the frame of reference will not be directly addressed in this re-
search. Moreover, although some arrows are included in the frame of reference,
the purpose of this study is not to explain causal relationships.




                                              36
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______


       Causes of Channel                                       Outcomes
           Conflict                                         (Behavioural and
                                                               Financial)
       Goal Incompatibility


        Domain Dissensus                                   Conflict Reducing
                                     Level of                Approaches
                                  Channel Conflict
           Inadequate                                        Institutionalised
         Communication
                                   Assessing the
                                   Seriousness of                Pricing
              Other               Channel Conflict

                                   Importance of            Product Versions
                                     Channel
             RQ1
                                                              Brand Name
                                    Revenue in
                                     Conflict
                                                             Compensation
                                   Conflict Issues
                                                            Communication
                                   Response of
                                 Channel Members
                                                                  Other

                                    Response of
                                    Customers                     RQ3


                                       Other


                                       RQ2


Figure 2.4 Conceptual Frame of Reference

2.3 Methodology


I   n this section, a description of the methodological considerations taken to an-
    swer the research questions will be presented. First, the research purpose will
    be presented, followed by the research approach, the research strategy, data



                                         37
______ CHAPTER 2 ______________________________________________________________________________

collection, data analysis, and finally a discussion of the trustworthiness of the re-
search.

2.3.1      Research Purpose
Research traditionally has been defined in terms of its purpose as exploratory, descrip-
tive, or explanatory. Exploratory research is used to study a little-understood phe-
nomenon, to identify or discover central categories of meaning (Marshall &
Rossman, 1999), and/or when the goal is to develop relevant hypotheses and
propositions for further research (Marshall & Rossman, 1999; Yin, 2003). Descrip-
tive research is used when the purpose is to document and describe the phenome-
non in question, whereas explanatory research is used to explain patterns related to
the phenomenon of interest and/or to identify possible relationships shaping the
phenomenon (Marshall & Rossman, 1999). Since few empirical studies of channel
conflict in multiple marketing channels, including the Internet, have been con-
ducted (see Section 2.3.2 for a further discussion on previous research), and since
propositions for future research were developed, the research purpose was explora-
tory. However, since existing theories within the channel conflict area were used in
order to describe managers’ perspectives on conflict in multiple marketing chan-
nels, including the Internet, the research purpose was also descriptive. In other
words, the research purpose was both exploratory and descriptive.

2.3.2     Research Approach
The research approach can be either quantitative, qualitative, or a combination of the
two (Sullivan, 2001). Quantitative research involves data in the form of numbers,
counts and measures, whereas qualitative research mainly involves data in the form
of words, pictures, descriptions, or narratives (ibid.). Quantitative studies empha-
size the measurement and analysis of causal relationships between variables, not
processes (Denzin & Lincoln, 2000). Qualitative research, in contrast, is any type of
research that produces findings not arrived at by statistical procedures or other
means of quantification (Strauss & Corbin, 1998). It can, for instance, refer to re-
search about organisational functioning (ibid.). Which approach to choose depends
mainly on two factors: the state of knowledge of the research problem, and the re-
searcher’s assessment of the nature of the phenomenon to be studied (Sullivan, 2001).

As for knowledge of the research problem, only five of the empirical studies of channel
conflict in marketing channels (see Appendix 2) were conducted, at least to some
extent, in a multiple marketing channel setting, including the Internet marketing
channel (cf. Webb, 1997; Rohm, 2001; Webb & Hogan, 2002; Coelho, Easing-
wood & Coelho, 2003; Jelassi & Leenen, 2003). However, in their research,
Coelho et al. (2003) did not separate the Internet from other direct channels (such
as direct mail, direct response advertising and telephone); the focus of Jelassi and
Leenen’s (2003) study of a single company was not channel conflict per se; in his
doctoral thesis, Webb (1997) studied only one company with regard to channel

                                              38
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

conflict in the Internet context, and the paper by Webb and Hogan (2002) is based
on that study; and although Rohm (2001) studied, among other things, channel
conflict in the Internet context, only three of the five companies he studied actu-
ally sold their products through multiple marketing channels, and only two of
these included the Internet marketing channel. It can therefore be concluded that
there are few studies and a lack of grounded research examining the influence of
the Internet on multiple marketing channels and subsequent channel conflict.

Regarding the phenomenon to be studied, i.e. managers’ perspectives on conflict in
multiple marketing channels with a focus on the Internet, it is important to find
out what managers think or feel about this – or at least, what they say they think
and how they say they feel. Such information is difficult to obtain without qualita-
tive research (Strauss & Corbin, 1998).

Since knowledge of the research problem is judged to be limited, and since the na-
ture of the research problem is best studied by qualitative research, a qualitative re-
search approach was chosen for this study.

2.3.3      Research Strategy
Five major research strategies exist: experiment, survey, archival analysis, history and
case study (Yin, 2003). All of them have different advantages, and they are chosen
depending on the type of research question(s), whether control over behavioural
events is needed, and/or whether the focus is on contemporary events (ibid.). The
research questions of this study were formulated as ‘how’ questions. When research
questions focus mainly on ‘why’ or ‘how’, the best research strategy is most proba-
bly case studies, histories, or experiments (Yin, 2003). The research problem of this
thesis is contemporary, since the focus was on channel conflict when companies
added the Internet marketing channel. The appropriate strategies for contemporary
qualitative research are experiments and/or case studies (Yin, 2003). Experiments
require control over the behaviour of the subjects under study, whereas case stud-
ies are preferred when the relevant behaviour cannot be manipulated (ibid.). Since
the researcher had no influence over managers’ perspectives on conflict in multiple
marketing channels, and since this study aimed at exploring and describing manag-
ers’ perspectives on this phenomenon, the case study research strategy was judged to
be most appropriate for this research.

2.3.4    Case Study
A case study can be described as a research strategy that focuses on understanding
the dynamics in a single setting (Eisenhardt, 1989). The researcher can decide to
conduct research on one single case or on multiple cases. A single case can be used,
e.g., when it represents the critical case to test a well formulated theory, or when
the case is extreme or unique (Yin, 2003). Multiple case studies involve, as the
name implies, more than one case. The disadvantage of multiple case studies is that

                                          39
______ CHAPTER 2 ______________________________________________________________________________

they require more time and resources than single case studies. The advantage,
though, is that they provide more compelling evidence. The research, therefore, is
considered more robust (ibid.). Since this research was not dependent on a single
unique case, and since multiple case studies are judged to be more robust, a multiple
case design was chosen for this research.

Selection of Case Study Firms
Even if one would like to, one cannot study everyone, everywhere, doing every-
thing. The choices of whom to study, where, when, about what and why, place
the limits on the conclusions one can draw (Miles & Huberman, 1994). The ones
you choose to look at, or talk with, form the sample (Chisnall, 1997). Qualitative
researchers generally work with small samples, which tend to be suited to the pur-
pose of the study, i.e. samples that are purposively rather than randomly selected
(Miles & Huberman, 1994), since the sampling is guided by the need to get access
to relevant evidence about the phenomenon (Potter, 1996). This can be summa-
rized by two words; relevant, which reflects a validity concern, and access, which re-
flects a practical concern (ibid.).

The selection criteria for the sample to be used in this research were as follows: (1)
the company must have at least two marketing channels; (2) one of these market-
ing channels had to be the Internet; and (3) at least one of the marketing channels
had to be owned by another company. In order to find companies with this pro-
file, information was retrieved from published material (articles, case studies, etc.)
as well as from research on the Internet.

Getting access to companies proved to be a challenge. Hewlett-Packard, Estée
Lauder and Tupperware were only a few of the companies that declined to partici-
pate in this research. In the end, Professor Jelassi, the author’s supervisor for the
first part of this thesis, was able to convince Mattel and Ducati to agree to an inter-
view. Scandinavian Airlines, on the other hand, was a positive exception; when the
secretary of the responsible person was called, a time for an interview was reserved
immediately. However, despite repeated attempts to get access to additional inter-
views with other key informants at Scandinavian Airlines, the researcher was
granted only one interview. In retrospect, this was not so strange, since the inter-
view was conducted two days before the company was to present its new domestic
offering, Nya Inrikesflyget.

Given the limited number of cases that usually can be studied, it makes sense to
choose cases of polar types (Eisenhardt, 1989). The companies chosen for this re-
search represent three diverse industries: Mattel, a toy manufacturer; Ducati, a mo-
torcycle manufacturer; and Scandinavian Airlines, an airline business. Even though
one of the case-study firms could not be included in this research for relevance rea-
sons (see Section 2.3.4), the two remaining companies are of polar types, since one

                                              40
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

is a manufacturer (Ducati) and the other is a service business (Scandinavian Air-
lines).

2.3.5     The Empirical Investigation
Data reduction can be defined as an analysis that sharpens, sorts, focuses, discards,
and organises data so that conclusions can be drawn and verified (Miles & Huber-
man, 1994). The process starts even before any data is collected, since the data col-
lection is guided by the researcher’s decisions on research questions, conceptual
frame of reference, data collection approaches and so on (ibid.). In the following
sections, the data collection methods used in this research will be presented, fol-
lowed by a description of how the data were analysed and reported.

Data Gathering
Case studies usually combine data collection methods (Eisenhardt, 1989). Four
typical methods for qualitative research are participation in the setting, direct observa-
tion, in-depth interviewing and analysing documents and material culture (Marshall &
Rossman, 1999). In this research, personal interviews, i.e. in-depth interviews con-
ducted face-to-face with the respondents, was the main data collection method.
Documents were another source of evidence. Examples include web pages, annual
reports, newspaper articles, press releases, brochures, a case study of Ducati from
2000 (Leenen & Jelassi, 2005) and so on.

Interviews can take several forms. In case studies, they are most commonly open-
ended, which allows the interviewer to ask respondents for facts as well as for their
opinions about events (Yin, 2003). Qualitative in-depth interviews are typically
more like conversations than formal interviews with predetermined response cate-
gories (Marshall & Rossman, 1999). Since the research purpose was exploratory
and descriptive, the interview guide was developed with the frame of reference as
base, and the questions were open-ended (see Appendix 3).

Personal interviews were conducted at each company with persons who were con-
sidered able to answer the questions. The first interview was conducted in Paris on
the evening of 7 February 2005 with Mr Christophe de la Fouchardiére, who had
worked as Sales Manager at Mattel France until September 2004. Unfortunately,
Mattel started to sell directly to end customers on the Internet after Mr de la
Fouchardiére left; therefore, he was not able to provide all the information neces-
sary for this research. Accordingly, this interview was not included. Due to time
and cost constraints, no additional interview with Mattel was set up. The interview
still was useful, since it provided a very good test of the interview guide, as well as
a deeper understanding of channel conflict.

The next case-study firm was Ducati Motor Holding, which is located in Borgo
Panigale, Bologna, Italy. The afternoon of 8 February 2005 was spent with Mr

                                           41
______ CHAPTER 2 ______________________________________________________________________________

Livio Lodi, Curator of the Ducati Museum, who arranged a visit to the factory.
This was followed by a visit to the Ducati Museum, where a lot of interesting in-
formation on the history of Ducati was provided. On the afternoon of 9 February,
interviews were conducted with the Creative Director of Ducati Motor Holding
SpA, David M. Gross; the General Manager of www.ducati.com, Patrizia Cianetti;
and the Community Director of Ducati Motor Holding SpA, Annalisa Dimonte.

The final respondent was Klavs Pedersen, Director of Product Coordination for
Scandinavian Airlines, Sweden. The interview took place on 14 February 2005 at
the airline’s Swedish head office, which is located in Arlanda, Stockholm.

Each of the above interviews lasted between one and a half and two hours, and
was conducted with the interview guide as the base around which questions cen-
tred. Professor Jelassi, the supervisor of the researcher, participated in the inter-
views with Mattel and Ducati. The interviews with Mattel and Ducati were con-
ducted in English, whereas the interview with Scandinavian Airlines was con-
ducted in Swedish. The questions and the order of questions were not followed to
the letter; instead, they were used as a starting point for discussion. At the end of
each interview, verifications were made to be sure that all subjects included in the
interview guide had been covered. Two tape recorders were used for each inter-
view to minimise the risk of non-functioning equipment. This also allowed the re-
searcher to fully concentrate on the respondents’ answers instead of taking notes,
which made it easier to realise when follow-up questions were needed.

Data Analysis and Presentation
Data reduction continues after the data is gathered, until the final report is com-
pleted (Miles & Huberman, 1994). The tape recordings must be processed (ibid.).
In this research, they were transcribed word for word, including incomplete sen-
tences, laughs, etc. This led to almost forty single-spaced pages of text just for the
Ducati case. One important step to cope with the staggering amount of data that
results from qualitative research is to adopt within-case analysis (Eisenhardt, 1989).
There is, however, no standard format for such analysis (ibid.). In this research, the
frame of reference was used to determine what to analyse.

Miles and Huberman (1994) stress the importance of structure when analysing
data. Accordingly, the text was structured and reduced under headings related to
the research issues defined in the frame of reference. The order of the text that led
to the conceptual frame of reference was used as a model for the order of the head-
ings, to keep the main theme consistent throughout the sections of this study. Text
that was related to the research but did not fit under any of the headings was put in
a separate section, to avoid excluding unexpected results. To improve the readabil-
ity of the research, figures were used to display the empirical findings.



                                              42
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

After the within-case analyses were completed, a cross-case analysis was carried
out. This analytical process is supported by Eisenhardt (1989), who states that the
wrong conclusions can be drawn from within-case analyses due to information-
processing biases. A good cross-case analysis can overcome these problems by look-
ing at the data in many different ways, e.g., looking for within-group similarities
coupled with inter-group differences (ibid.). Tables were used to help in this proc-
ess. The results from the within-case analyses and the cross-case analysis were used
to discuss and present the findings and conclusions from this research.

2.3.6      Issues of Validity and Reliability
The research design is the logical sequence that connects the research questions
posed, the empirical data collected, and the conclusions drawn (Yin, 2003). There-
fore, the case study investigator must maximise the quality of the design, i.e. its va-
lidity and the reliability (ibid.). Validity refers to how well a specific research
method measures what it is supposed to measure (Chisnall, 1997), whereas reliabil-
ity refers to how consistent the research is (Potter, 1996). Four tests are commonly
used to establish the quality of any empirical social research: construct validity, inter-
nal validity, external validity and reliability (Yin, 2003) (see Table 2.5).
Table 2.5 Case Study Tactics for Four Design Tests (Yin, 2003, p. 34)
 Tests                 Case Study Tactic                          Phase of Research in
                                                                  which Tactic Occurs
 Construct Validity    - Use multiple sources of evidence         Data collection
                       - Establish chain of evidence              Data collection
                       - Have key informants review draft case    Composition
                         study report
 Internal Validity     - Do pattern-matching                      Data analysis
                       - Do explanation-building                  Data analysis
                       - Address rival explanations               Data analysis
                       - Use logic models                         Data analysis
 External Validity     - Use theory in single-case studies        Research design
                       - Use replication logic in multiple-case   Research design
                         studies
 Reliability           - Use case study protocol                  Data collection
                       - Develop case study database              Data collection

Construct validity refers to establishing correct operational measures of the concepts
being studied (Yin, 2003). Conceptualisations and measures for addressing the re-
search problem were developed (see Section 2.2.2). For the Ducati case, the main
data collection method was personal interviews of three key informants. The
Ducati Factory and the Ducati Museum also were visited, and they provided addi-
tional information. Other sources of evidence were the Ducati 2004 yearbook,
brochures, a case study from 2000 (Leenen & Jelassi, 2005) and the company web
site. Follow-up questions were asked by e-mail. After the presentation of the em-
pirical evidence was concluded, the draft was evaluated by each respondent. As al-


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ready explained, at Scandinavian Airlines the researcher was granted only one in-
terview. The task of finding additional sources of information was therefore even
more intense for this case. Additional sources of evidence were newspaper articles,
press releases, the SAS 2004 annual report (SAS, 2005), the SAS web site, competi-
tors’ web sites, etc. Follow-up questions were asked via e-mail and a telephone in-
terview. When the empirical evidence presentation was completed, the respondent
was sent a draft to review.

The perspective of this study was the producers’ perspectives. It is, however, possi-
ble that the answers would have been totally different had the respondents been
managers from the reseller side instead of producers.

Furthermore, it must be noted that conflict seems to be a sensitive subject. It is
therefore possible that the respondents played down the seriousness of conflicts
with their resellers so as not to jeopardise their relationships with them.

Internal validity is used only for explanatory and causal studies (Yin, 2003). Since
this research was exploratory and descriptive, this aspect of validity will not be dis-
cussed.

External validity deals with whether research findings can be generalised beyond the
immediate study (Yin, 2003). The intention of this research was not to generalise
the findings to all companies that bypass their resellers by use of the Internet mar-
keting channel. Instead, the findings were used to generalise to theory. This kind
of generalisation is referred to as analytical generalisation (Yin, 2003). However, this
generalisation cannot take place unless the findings are replicated in another setting,
so-called replication logic (ibid.). Therefore, in order to increase the external validity,
two case studies were conducted with companies representing different types of
industries (manufacturing company vs. service provider).

Reliability refers to whether the findings and conclusions would be the same if an-
other researcher repeated the same study (Yin, 2003). Reliability is also about
minimising errors and biases (ibid.). This research was discussed and evaluated sev-
eral times by colleagues at internal research seminars at Luleå University of Tech-
nology. In addition, throughout the research process, Professor Jelassi, supervisor of
the producer study, revised the chapters and the interview guide. Three separate
interviews with key informants were conducted at Ducati, which ensured that the
evidence was accurate and consistent. Even though only one interview was con-
ducted at Scandinavian Airlines, the respondent was deeply involved in the devel-
opment of the company’s distribution strategy. During all the interviews, two tape
recorders were used, which made taking notes unnecessary; this allowed the inter-
viewer to focus on understanding the respondents’ answers and asking follow-up
questions. This approach also provided tape recordings of the entire interviews; be-


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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

cause the tapes did not end simultaneously, there was no missing data. Each of the
interviews was written down word for word. Afterwards, the backup tape was lis-
tened to and compared to the written text, to make sure that there were no obvi-
ous misinterpretations of the respondents’ answers. During the data analysis stage,
respondents were contacted by e-mail or telephone to clarify or elaborate certain
issues. In order to increase the possibility of repeating this research, the goal of this
thesis was to present how each step of the research process was carried out. All ma-
terial related to the case studies is organised, documented and stored in a manner
that enables others to retrieve them efficiently at some later date.

2.4 Empirical Evidence


I     n this section, the empirical data collected from the two case studies will be
      presented. For each case, a background of the company will be presented.
      Thereafter, in accordance with the frame of reference, the findings related to
the causes of conflict, the approaches used to assess the seriousness of channel con-
flict, and the approaches used to minimise channel conflict will be presented. Each
case presentation will end with a discussion of the unique characteristics of the
Internet, as well as a section on non-Internet-related channel conflict.

2.4.1     Case One: Ducati Motor Holding SpA
Ducati Motor Holding SpA, hereafter referred to as Ducati, is an Italian manufac-
turer of premium priced, high performance motorcycles. The company, which is
located in Borgo Panigale, Bologna, Italy, was founded in 1926 by the Ducati
brothers. At that time, the company produced industrial components for the grow-
ing field of radio transmissions. In 1946, the Cucciolo was introduced, i.e. a small
auxiliary motor for bicycles. Soon, the Cucciolo became a true miniature motor-
cycle. In 1948, the company was taken over by the Italian government. By the
mid 1950s, Ducati’s production included several motorcycle models. Since then,
Ducati motorcycles have dominated the World Superbike Championships. In
1983, the company was purchased by the Cagiva Group. Under the new manage-
ment, Ducati expanded its share of the motorcycle market, introduced new motor-
cycle models, and intensified its commitment to racing. In 1995, despite product
innovation and racing successes, Ducati entered a deep financial crisis. The com-
pany was taken over by its present owner, the Texas Pacific Group, an American
investment firm that brought in money and a team of international managers.

Shortly after the takeover, Ducati posted increasing sales and profits. The produc-
tion, which was about 12,000 units/year in 1996, increased to about 40,000 units
in 2000; at the same time the number of employees only increased from 600 to
1,200. The year 2000 was the peak of growth for the motorcycle market in gen-
eral, since, among other things, it was the last year of certain tax incentives and
subsidies for updating motorcycles for Europeans. It also was the year when the


                                           45
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stock exchange crashed, which brought changes in the whole world economy.
Since then, Ducati has been relatively stable in terms of volume, although the
company has lost volume, so that last year it sold around 37,000 motorcycles. In
other words, the company hit a ceiling in terms of sales and is therefore developing
and launching new products that will make it possible to continue to grow. The
factory has the capacity to produce around 70,000 motorcycles a year; it is just a
question of adding shifts, or eventually building new production lines. But since
the US accounts for around 16 percent of the company’s sales, the dramatic decline
of the dollar has hurt the company’s profits. The company lost 200 of its employ-
ees during 2004 and is planning to let go another 50 people during 2005.

EU regulations, together with environmental and noise regulations, have made it
difficult to work with local suppliers of motorcycle components. Accordingly,
Ducati purchases most of these components from major European suppliers in
Germany, Sweden and Italy. Even so, all of Ducati’s motorcycles are produced in
Bologna, Italy. Ducati’s major competitors are the Japanese motorcycle manufac-
turers Honda and Yamaha, and sometimes Suzuki and Kawasaki.

“The reality is that anybody who manufactures a motorcycle or a scooter is competing with
the Japanese, because the Japanese offer a direct competitor in everything that you can do. We
have Superbikes, they have Superbikes. We have Naked bikes, they have Naked bikes.
What we really are trying to do is to carve out the niches that our competitors don’t exactly
have, because we do not want to go against their core strength. Therefore, we launched the
Multistrada and the Sport Classic families. We’re good at creating excitement; we have
European, particularly Italian heritage; we have a made in Italy product; we have the ability
as a smaller niche-manufacturer to do things that other companies can’t do. For us, if we sell
5,000 or 6,000 units of a product family, that’s a big success. The Japanese look at num-
bers that are hundreds of thousands, or tens of thousands at a minimum. So we have a lower
breakeven point which allows us to do unique things. So, to the extent that we can create a
world of excitement, a world of activities around our product, to justify the brand, to justify
the premium price, this is what we have to do.”
                                                     – David M. Gross, Creative Director

Even though Ducati is a small company, it has the ability to develop competitive
secure engines, both on a race level and on a street motorcycle level, while most
competitors have to buy engines from other companies. The sound of Ducati’s en-
gine is also very characteristic. Therefore, Ducati regards the engine as one of its
core competencies. The other core competency is the brand. Ducati has trans-
formed the company, and thereby the brand, from an industrial company into an
entertainment company. Although the focus is on motorcycles, management
claims that the company is also in the business of providing entertainment for its
customers (Ducatisti, enthusiasts or fans, as Ducati refers to them).



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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

Since 1996, Ducati has also built a licensing business that generates about € 2.2
million pure profit a year. Furthermore, the company has an apparel and accesso-
ries business that brings in around € 30 million a year. In Italy, Ducati sells its
products to its retail dealers directly from Bologna. In its other major markets, i.e.
North America, UK, Germany, France, Japan, Benelux and Sweden, Ducati has
wholly-owned subsidiaries. The Italian dealers and the wholly-owned subsidiaries
are responsible for about 90 percent of the company’s sales. All other countries are
handled by distributors, the major ones being South Africa, Australia, Switzerland
and Spain. Thus, the sales are concentrated in Western Europe, North America,
Japan and Australia. Ducati’s marketing channel system is illustrated in Figure 2.5.


   Internet                                    Ducati              Main Office &   Outlet
                                                                   Airport Shops

          Italian       Distributors                Wholly-Owned
          Dealers       (e.g., Spain)          Subsidiaries (e.g., Sweden)



                    Dealer 1       Dealer 2         Dealer 1      Dealer 2
                     (e.g.,         (e.g.,           (e.g.,     (e.g., Stock-
                     Ibiza)       Barcelona)         Luleå)         holm)



                                        End Customers



Figure 2.5 Ducati’s Marketing Channel System
Since 1996, management has cut the number of dealers. Today, the global network
consists of around 800 sales locations, about 200 of which are Ducati stores that sell
most of the company’s volume. In Italy, for instance, the number of stores has
been cut from 200 to 50. Most of those 50 stores are single-brand Ducati stores
which sell around 13,000 units/year. In the US, Ducati has 200 sales locations, but
these are multi-line dealerships which sell around 6,000 units/year. Although the
company would like to have more single-brand stores, it cannot afford to support a
store that is not selling enough on its own. Ducati also has a shop at its main office,
and it has recently opened one at the airport in Bologna, as well as an outlet just
outside the main office. In the main office and airport shops, the company does
not sell motorcycles, but rather t-shirts, leather jackets, etc. In the outlet, on the
other hand, besides apparel and accessories, the company sells motorcycles that
have been used during Ducati events; the company uses around 250 motorcycles
each year that they need to sell at the end of the year.


                                               47
______ CHAPTER 2 ______________________________________________________________________________

Ducati does not sell its products only through physical marketing channels. On 1
January 2000, at 00:01 a.m. GMT5, Ducati launched its MH900e, a special edition
motorcycle, exclusively on the Internet, i.e. customers could only purchase the
motorcycle online. The price of the motorcycle was set at € 15,000. After just 31
minutes, the first year’s production was sold out.




Figure 2.6 The MH900e (Ducati, 2005)

Shortly thereafter, Ducati increased its strategic commitment to the Internet with
the establishment of www.ducati.com, an independent partner enterprise, which
was located outside the main office. Besides the MH9000e, three other motorcycle
models have been sold exclusively on the Internet, yielding a total of 3,000 bikes:
the 996R, which sold for € 26,000, the Fogarty, which cost € 18,000, and the
999R, which sold for € 30,000. Ducati also sold a very high priced bicycle on the
Internet, i.e. it was developed by the bicycle manufacturer Bianchi, but it was sold
under Ducati’s brand name. Management did this as an experiment, because it
wanted to understand the limits of the Ducati’s brand, but the selling of the bicycle
was not very successful. Ducati also sells some of its apparel and accessories on the
Internet. Apparel that is manufactured by Ducati is sold online. Some products de-
veloped by Ducati’s licensing companies also are sold online, but not necessarily
through the dealer network.

Accessories are divided into three categories: technical accessories, i.e. engine kits,
wheels, and other important parts of the bike; light accessories, e.g., carbon fibre ac-
cessories, aesthetic accessories; and technical gear, i.e. leather jackets and helmets.
The technical accessories are not available online for (among other) legal reasons, since
the company cannot sell parts directly to end customers if there is a danger of their
being incorrectly assembled on the motorcycle. Such parts require the assistance of
the dealer. Light accessories, on the other hand, are available online, since they do
not involve the safety of the motorcycle. Technical gear, such as leather race suits,
are not sold online, since, for example, it is difficult for customers to decide what
size of leather suit or a helmet they need without trying it on.

5
    GMT refers to Greenwich Mean Time.

                                              48
__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

www.ducati.com, hereafter called ducati.com, focuses mainly on community-
related activities, i.e. online interaction with Ducati’s end customers. All kinds of
interactions are involved, ranging from simply asking customers about their per-
sonal lives to letting them publish articles, pictures, etc., on the site. Ducati.com
has conducted online surveys, such as the Censimento Ducati; the company asked its
online visitors forty-five questions and received 18,000 answers. Typically, online
surveys are used to help confirm product decisions or modify them. In 2004,
Ducati’s web site had more than eight million unique visitors, and the company
had 140,000 active registered users. That same year, the renowned financial paper
Sole 24 ORE praised ducati.com for having the best automotive site. Recently,
ducati.com was integrated with Ducati as an internal department. It now belongs
to the community section, which includes event management, company sponsor-
ships, customer service, advertising, a creative centre, the Internet channel and
trade shows. All personnel now work in a large, open working area at Ducati’s
main office.

Causes of Channel Conflict
When Ducati developed the MH900e, its sales department was not sure exactly
what to do with it, since it thought that the motorcycle was a very controversial
and exciting product. Accordingly, Ducati decided to sell the motorcycle on the
Internet to get direct feedback from its customers, to create entertainment for its
fans, to jumpstart the company’s Internet program, and to experiment outside the
traditional network. It became clear to the company that the market for Ducati
was very large and that the traditional network was very limited. Therefore, Ducati
focused very much on the Internet; it thought that everything could be sold on the
Internet, and that this was a fast way to sell products. But when Ducati sold motor-
cycles online, channel conflict occurred with its dealers. The dealers wanted to be
the ones to unveil new motorcycle models, and they wanted to be the contact
point with Ducati’s customers.

“Think about any business that works this way. Porsche launches a new car. They do not
sell reservations online. They send the car out to the dealers, and the dealers take deposits,
and part of the excitement is that you get the brochure to your house, but you go to the dealer
to see the car. So we need to make sure that in managing conflict in the channel, that the
dealer is still the place. They do not make as much money on the sale of the bike as they do
on the sales of the parts, the accessories, the experiences, the ride outs, service, so you want
the customer in that environment.”
                                                      – David M. Gross, Creative Director

The customers who purchased motorcycles online had pretty much the same cus-
tomer profile as the ones who purchased them at the dealership. At least during the
sales of the MH900e, however, there were some differences: one marketing man-
ager purchased a motorcycle and now keeps it in his office as a piece of art. Others

                                              49
______ CHAPTER 2 ______________________________________________________________________________

saw the motorcycle as an investment. But most were just ordinary Ducati custom-
ers who wanted to purchase a motorcycle, and since it was sold on the Internet
they bought it there; if it would have been sold through the dealer network, they
would have gone to a dealer. According to management, the channel conflict that
occurred with its dealers was caused by inadequate communication.

“It was a problem of communication management. I am strongly convinced that 98 percent of
problems with the dealer network can be easily solved with good communication and clear
communication, and consistent communication. When the communication is not working
properly, the dealer is reacting negatively, but this applies to everything: to the online sales,
to the internal communication, to the availability of motorcycles, information that stops at one
level, misunderstandings, or the time gap, that the customer has information before the
dealer.”
                                        – Patrizia Cianetti, General Manager, ducati.com

“The only thing that I see that causes conflict is when the communication is not homogene-
ous, or when it is redundant. But this is not a problem of the channels; it is a problem caused
by people who are not using the channels in a good way.”
                                              – Annalisa Dimonte, Community Director

Assessing the Seriousness of Channel Conflict
According to management, channel conflict occurs at different levels at Ducati: in-
ternally, among different departments within Ducati, and externally, between
Ducati and its resellers, between Ducati and its customers, and between the resel-
lers and the customers. An example of channel conflict among different depart-
ments within Ducati is when the press office comes out with its own press release
about product positioning while, at the same time, the Internet comes out with its
own product positioning. When there is no coordination between the different
departments at Ducati, inter-functional disagreements arise.

Since management wants to entertain Ducati’s customers, it claims that it is trying
to create conflict, to do things that are radical, exciting and controversial, so that
the customers have a reason to believe in Ducati. The actions are all aimed at
building a dynamic Ducati brand, since the Japanese are particularly adept at pro-
ducing cheaper, more reliable motorcycles. In other words, Ducati needs to sustain
its brand, to justify the premium price.

Management does not think that the Internet has caused more conflict with its re-
sellers. Furthermore, it does not view the channel conflict that resulted from selling
motorcycles online as dangerous to the company.

“I do not think so. We had some problems, some bad reactions, but I do not think it was a
real critical problem for the company.”
                                        – Patrizia Cianetti, General Manager, ducati.com

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

But, as already stated, the dealers got angry and claimed that they would have been
able to sell the MH900e at the same rate if the company had just given it to them.
Although dealers were upset, none of them ended their relationships with Ducati
due to the online sales of motorcycles, and the disagreements did not disturb
Ducati’s customers much, according to management.

Ducati has not used any structured approaches to find out about the conflict with
its dealers. Management spent a lot of time talking to dealers when they sold mo-
torcycles online, as well as a lot of time talking internally, but they did no formal
surveys, etc. Since Ducati thinks that one of the major obstacles to the company’s
growth is the weakness of its distribution network, management decided that it did
not want to do anything that would weaken the network any further. So for the
time being, the online sales of motorcycles have almost stopped. The company is
planning to sell motorcycles online occasionally, but only if it is a limited edition
and a highly desirable, exciting product. But for the time being, Ducati is not
planning to produce a very limited edition of motorcycles.

“We have not sold any bikes on the Internet for two years now, because it is very compli-
cated, and because we did it several times so there was no longer any novelty, no news. I
think that we will only sell motorcycles online if it is an element of distinction, an element to
enrich the company in some way, to give value to our brand. Otherwise, if there is no nov-
elty, something new, something that makes us somewhat distinguish from others, enrich our
brand, I think we will not do it.”
                                              – Annalisa Dimonte, Community Director

“I strongly believe in the Internet channel. Now we are starting the regular work, not the ex-
ceptional work that we saw in the past. We do not any longer look at the Internet channel as
an opportunity to change the business, to do incredible stuff. The Internet is just another
channel that the company has to manage, because if we do not manage it the dealers will start
to sell online, something that will bring a lot of problems regarding boundaries of territories.
Therefore, you can either decide to wait and see what will happen, or you can decide to go
online and define a strategy of the Internet channel. There is no way to avoid Internet man-
agement.”
                                        – Patrizia Cianetti, General Manager, ducati.com

“It is definitely clear that our Internet effort is continuing to grow in terms of apparel and ac-
cessories. So it is very clear for me that we are going to sell more and more on the Internet
over time, as long as we have a sense of the importance of the dealer in that mix. We want
to make sure that the dealer is part of the success.”
                                                         – David M. Gross, Creative Director




                                               51
______ CHAPTER 2 ______________________________________________________________________________

Approaches to Minimise Channel Conflict
Ducati's management integrated ducati.com’s with Ducati because it wanted the
message to be the same through all of its channels. To achieve this, management
felt the need to gather all community personnel in the same building, at the same
location. A base text that describes the positioning of a certain product is devel-
oped by the Creative Director and another person. This text is then distributed
through all the marketing channels, including the Internet, subsidiaries, distribu-
tors, press communications and internal communications. This is done to increase
the consistency of communication, whichever channel is used.

To improve communication with its resellers, Ducati has recently invested in a
communication system, a basic extranet. The extranet allows Ducati to communi-
cate with its subsidiaries and distributors, and these in turn can communicate with
the dealers. One reason for the new communication system is to reduce conflict
within the distribution network, but also to speed up and facilitate communication
throughout the distribution network.

“It is so easy for us to publish something online. The customer sees this information, goes to
the dealer, but since the dealer did not go to our web site they do not have the same informa-
tion. With the use of the extranet, the dealer will get the information before it is published on
our web site, so that the dealer can take as good care of the customer as possible.”
                                        – Patrizia Cianetti, General Manager, ducati.com

As soon as Ducati started to sell motorcycles on the Internet, management tried to
involve the dealers in the sales. One reason was to minimise channel conflict, but
also, since motorcycles are produced according to country specific regulations re-
garding lights, cc, etc., Ducati needed to know where the motorcycles should be
delivered. Furthermore, once a motorcycle is delivered, someone needs to give it
oil and gasoline, address customer expectations and so on.

“To my knowledge, there is no way to sell a bike without the support of a dealer. You can
not ship a bike with gasoline or oil inside. We need someone trained, who knows very much
about the bikes, to refer the bike to the customer.”
                                         – Patrizia Cianetti, General Manager, ducati.com

“When you are selling online, it means that all channels have to cooperate, including the
dealer. Because even though you purchase online, you go to the dealer to receive the physical
bike. Customers see something on the Internet, and their expectations can be different from
what they get in reality, so you have to be ready to manage the expectations of the customer
in a positive and good way. This is very critical.”
                                               – Annalisa Dimonte, Community Director

“It is one thing to sell a motorcycle, but you need the customer allied with the dealer.”
                                                      – David M. Gross, Creative Designer

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

The customer had to choose a reference dealer, which had to be someone within
the country of delivery. Then the customer had to pay a reservation fee online, by
credit card. Due to customers’ credit card limits, the reservation fee was not linked
to the price of the motorcycle; for instance, 10 percent of the purchase price is a
lot of money (e.g., the 999R sold for € 30,000) and not many people have such a
high credit card limit. The information that a person had paid the reservation fee
was submitted electronically to the subsidiary or the distributor, who thereafter
transferred the information to the selected dealer. If the dealer refused to authorise
the sale of the motorcycle, the subsidiary or distributor transferred the request to
another dealer, because Ducati cannot force a dealer to accept a transaction. When
a dealer accepted the transaction, which he or she could do by simply clicking yes
to the question, the customer received this information, together with a statement
that the dealer would soon contact the customer.

The dealer received a commission on the sale, but this commission was lower than
it would have been had the customer bought a motorcycle directly from the
dealer, i.e. through the physical channel, since the dealer had no marketing costs,
no inventory costs or risk, no pre-sale service costs, etc., for the online sale.

As already stated, Ducati’s web site has more than eight million unique visitors
each year. Ducati, therefore, has increased its online offerings of apparel and acces-
sories, in order to sell more to these visitors. The routine is the same for these
online sales of accessories or apparel as for motorcycles, i.e. customers have to
choose a reference dealer, who then receives a commission on the sales. The ap-
parel or accessories are delivered directly to the end customer, without going
through the dealership. Since the dealer is not involved at all in these sales, Ducati
refers to this commission as ‘money for nothing’. But dealers get more than money
as compensation for the sales; they also get access to information about the custom-
ers. Ducati encourages the dealers to contact its online customers, to invite them to
events, etc.

The online prices for apparel and accessories are the same as the suggested dealer
prices, since Ducati applies the MSRP, the Manufacturer’s Suggested Retail Price.
For instance, if the MSRP is € 100, this is the price that the dealer will show to
the customer, but this price includes shipment costs and duty. If the customer pur-
chases the same product online, the base price will still be € 100, but then the
shipment costs and duties will be added. So, in the end, customers pay more for
the same product when purchasing it online. Ducati does this to show the dealers
that they are not trying to compete with them, since they view the dealers as one
of the company’s biggest assets. Ducati wants the dealers to be happy and rich, to
grow, to open new stores, etc. But Ducati also feels the need to exploit the Inter-
net channel; therefore, it gives the dealers all information on the online sales, to
make sure that the situation is transparent. More specifically, Ducati transfers all


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______ CHAPTER 2 ______________________________________________________________________________

customer data to the reference dealer, and on a monthly basis it publishes all the
results from the Internet sales.

Since the products in reality cost more on the Internet than at the dealers, there is
no channel conflict about pricing. The problem is that with this pricing approach it
is not interesting for customers to purchase products online, unless they live far
away from a dealer. As far as money is concerned, the Internet is not currently an
important channel for Ducati.

“We sell 40,000 bikes a year, but there are eight million people searching for us online.
There is something that we can do. There is something that we have to do. What we have
said is that we are looking for the right way to exploit this potential. We do not know if this
is the right way. Probably not. Meanwhile we are trying to understand what opportunities
there are to merge the processes of selling offline through dealers and selling online directly to
customers.”
                                         – Patrizia Cianetti, General Manager, ducati.com

Unique Characteristics of the Internet
In 2000, Ducati’s management thought that the Internet would offer the opportu-
nity to speed up the company’s procedures, since the Internet can transfer informa-
tion rapidly to customers. However, it proved to be the offline processes that
brought the maximum speed to the company. In other words, the company’s pro-
cedures defined the speed of the Internet channel, not the other way around. Man-
agement also thinks that, from the beginning, it should have concentrated more on
offline processes, especially logistics, invoicing, etc. This is because, apart from the
online part of the purchase, where the customer uses the catalogue, the “shopping
cart” and so on, it is a standard sales process. Ducati spent a lot of time and energy
trying to change the process in order to have proper management of end customer
sales, because when Ducati sells to its dealers it sells to other companies, and this
involves different kinds of orders and parcel management. It took management a
great deal of time and energy to understand how to merge the processes and then
to do the merging. So management thinks that it from the start should have fo-
cused more on defining the offline processes, because then it would have spent less
time, less money and less energy on developing the e-commerce.

Furthermore, in the beginning, Ducati’s web site was extremely sprawling. Today,
Ducati emphasises focus and increased quality, which management wishes it had
done from the beginning. Now the site is closely connected with sales goals, be-
cause even though Ducati has managed to build a strong brand name, the brand
name has to sell motorcycles. That is, each year a goal, i.e. a percentage of growth
in web visitors and registered users, is established. Ducati also has set goals related
to brand management, including style of content, richness of graphics, pictures,
etc. The web site is organised around the concept of totem, meaning that different

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customers have different entry points to the company. Some “Ducatisti” like
Ducati because of the design, whereas others like it because of the company’s his-
tory. Therefore, Ducati’s totems are the design, the history of the company, the
engine, the sound of the engine, etc. The company wants to get its customers to
enter through all these totems, or gates, so they will understand and appreciate the
whole world of Ducati.

Ducati also discussed the online solution of Harley-Davidson. In the US, Harley-
Davidson has developed a kind of online mall, i.e. every dealership has its own
“shop” on the Harley-Davidson web site. Customers have to select a dealer, which
means that when they enter the catalogue, they look at the product prices the
dealer has selected. Customers purchase, i.e. receive the invoice, from the selected
dealer. The product is shipped from the dealer if it is in stock; otherwise, it is
shipped from the central warehouse. Ducati thinks that this online model is very
interesting but difficult for it to utilize it, since Ducati has relatively few dealers,
and these are located in many different countries with different laws and rules. For
instance, in some countries it is illegal to offer products to end customers at a price
below MSRP.

The Internet gives Ducati information about customer preferences, since, for in-
stance, customers in chat rooms discuss Ducati and its products. Even though it is
not possible to listen to everything, the Internet gives Ducati a strong sense of what
people think. Management also conducts many online surveys to get information
about new products and new ideas, as well as to take the pulse of what is happen-
ing in the dealer network. As already stated, customers are very willing to partici-
pate in these surveys. Ducati uses Siebel’s CRM platform as support in this work.
Since Ducati is a small company, management regards the Internet as crucial to
everything, because it is the most efficient, economical way for it to communicate
with its customers, or potential customers, at a very low cost. The Internet also
gives Ducati the opportunity to serve customers who are located far away from a
dealer.

Management used to talk about going public with ducati.com as a separate com-
pany, but no one talks about that today. However, management will continue to
develop the basic premise, which is that the Internet will continue to provide in-
formation for management, bring the company closer to its customers, and be the
first place where people see the motorcycles. The idea is that the Internet market-
ing channel always will be richer, more dynamic, more exciting and more relevant
to the customer experience, than will all the other marketing channels.

“For me, the physical and virtual worlds are complementary, and help each other to enrich
the company, to enrich our activities and the value of the company.”
                                              – Annalisa Dimonte, Community Director


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Non-Internet-Related Channel Conflict
As already stated, Ducati sells used motorcycles through its own outlet, just outside
the main office. In order not to get into conflict with its resellers, Ducati shows
new motorcycles at this outlet, but it does not sell them. If customers are interested
in purchasing new motorcycles, Ducati refers them to the dealers. In addition,
when customers purchase used motorcycles, they are offered the option to pick up
the motorcycle at any Ducati dealer. The transportation of the motorcycle to the
dealer is offered to the customer or the dealer without cost. The reason is that
Ducati wants to link customers to their dealers, because the story of the customer
starts when purchasing the motorcycle, but the maintenance period, the repur-
chase, the handling of customer expectations, and everything else, must be contin-
ued in Ducati’s dealer network. Management thinks that this exchange with the
customer is positive, because the customer gets to see a link between the main of-
fice and the dealer. It also is a way for management to better understand the taste
or attitude of the customer. Because the outlet personnel are employed by Ducati,
the company gets direct access to customers’ reactions without the intermediation
of other channels.

Moreover, Ducati has fan clubs all around the world. Harley Davidson, the Ameri-
can motorcycle manufacturer, has forced its clubs to be attached to dealers. Ducati
decided not to do this, since it does not want to act like a policeman and it likes
the idea of a big, heterogeneous ‘tribe’. The dealers want the clubs, which consist
of Ducati customers, to be attached to their businesses, since it is the dealers who
resolve customer issues such as service problems, warranty problems and connec-
tions with the company. Thus, having clubs outside the dealer network has created
conflict.

Other conflict issues also arose. For instance, dealers became angry when they re-
ceived information that a motorcycle model was still available for sale, when in re-
ality it had sold out. Furthermore, customers sometimes got access to information
before the dealers did. This made dealers angry, since they were not able to man-
age the customer properly or exploit the fact that the customer decided to spend
time at their dealership.

Ducati also refers to conflict with its customers. Since the core customers are more
or less mechanics who can take the engine apart and put it back together, they of-
ten know more about the motorcycles than do Ducati’s marketers, sales people and
executives; this can create conflict. In addition, Ducati mentioned the conflict that
occurs among different customer segments. Ducati’s customers have different entry
points to the brand. Some love racing, whereas others love Ducati’s design, etc.
Management thinks that these diverse interests create conflict. Although manage-
ment thinks that this conflict is very positive for Ducati, and even celebrates it as a
sign of customer engagement, it wants to keep it from getting too intense. There-

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fore, it has to be very clear about communications. The previously described base
text (see Section 2.4.1, p. 52), distributed though all marketing channels, is used to
achieve this objective.

2.4.2      Case Two: Scandinavian Airlines
Scandinavian Airlines, hereafter referred to as SAS, was formed in 1946 through
the merger of three national carriers in Denmark, Norway and Sweden. Today,
SAS is the fourth largest European airline group, and it is the Nordic region’s larg-
est listed airline and travel group in terms of number of passengers and operating
revenue. SAS has around 1,445 daily departures to 146 destinations in Europe,
North America and Asia. The company is a member of Star Alliance, the world’s
largest airline alliance. Together with its Star Alliance partners, SAS offers more
than 770 destinations worldwide. In addition to its involvement in Star Alliance,
SAS since 1996 has had a strategic alliance with Lufthansa, coordinating routes,
timetables and capacity. The SAS Group also includes companies that support air-
line operations, as well as a business area that operates hotels.

Most large European airlines, including SAS, were once at least half-owned by the
government. But during the 1990s, the European Union forced a deregulation of
the European airline industry. Since this deregulation, the industry has suffered
from overcapacity, and there have been dozens of bankruptcies in Europe. The
terrorist attacks on 11 September 2001 were a major shock that further weakened
the industry. The outbreak of SARS in 2003 was yet another bad stroke. In addi-
tion, particularly in the northern skies, strong competition has led to a collapse in
prices. As a result of all these factors, European airlines have not been profitable
since 1998, and the last few years have been rather problematic financially for SAS.

Although there can be advantages in being a large company, such as the ability to
exploit synergies, the formerly totally integrated SAS faced increased costs and thus
did not achieve competitive advantage. Therefore, to reduce complexity and to
clarify responsibility for its earnings, SAS established in October 2004 three
wholly-owned subsidiaries in Denmark, Norway and Sweden, plus SAS Interna-
tional. The three subsidiaries focus on their respective domestic markets, or opera-
tions in, to and from their countries. SAS International is run as a separate business.
It is responsible for intercontinental airline operations to the US and Asia, and for
sales outside Scandinavia. A recovery program has also been implemented, which
reduced the cost level by more than SEK 10 billion6 in 2004 compared to 2003,
due, among other things, to a reduction by 2,130 employees in 2004.




6
    On 29 March 29 2005, SEK 1,000 amounted to € 108 or US$ 139.60.

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______ CHAPTER 2 ______________________________________________________________________________

SAS’s competitors are airlines in Scandinavia and the rest of Europe, the major
ones being Air France/KLM, British Airways, Finnair, FlyNordic and Flyme.
Other competitors include Maersk Air, Sterling, Malmö Aviation and Iberia.

Management distinguishes four different marketing channels: travel agencies and
company owned channels, which in turn can be classified as offline or online. The
understanding of the Internet as a sales channel has increased a great deal during re-
cent years, and several travel agencies, just as SAS, have spent a lot of money to
develop online sales systems to increase efficiency. The major travel agencies have
their own web sites, which serve as a complement to their traditional channels, so-
called mixed agents7. The largest Swedish travel agency, American Express (formerly
Nyman & Schultz), for instance, has introduced online booking as its standard pro-
cedure. If customers instead prefer manual service (e.g., telephone), it costs extra.
SAS sees this as a sign that the market is getting more mature and that the under-
standing of the Internet is increasing. Some smaller travel agencies operate only
through traditional channels, so-called traditional agents. Then there are travel agen-
cies that operate only online, so-called Internet agents. SAS has its own telephone
sales centres, in addition to its web site, www.scandinavian.net. SAS’s marketing
channel system is illustrated in Figure 2.7.


     Internet                           Scandinavian Airlines                        Telephone


             Internet                Mixed                            Traditional
              Agents                 Agents                             Agents



                     Internet       Physical          Tele-       Physical           Tele-
                     Channel        Channel           phone       Channel            phone
                                                     Channel                        Channel



                                          End Customers



Figure 2.7 SAS’s Marketing Channel System
The majority of SAS’s sales are made through travel agencies; in 2004 agents made
between 56 percent (in Norway) and 84 percent (SAS International) of all book-

7
 To make it clearer to the reader, the different types of travel agencies have been labelled. Please
note that these labels are not used by SAS!

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

ings, whereas telephone sales accounted for between 9 percent (in Denmark) and
23 percent (in Norway). The Internet channel had between 6 percent (SAS Inter-
national) and 21 percent (in Norway and Sweden) of the total bookings. SAS’s
Internet sales through its own web site have increased substantially in recent years,
but this increase comes according to management primarily from SAS telephone
sales, not so much from sales through travel agencies.

SAS offers three different types of tickets for three different kinds of customers:
comfort customers, productivity customers and low fare customers. Comfort customers are
those whose priorities are extra comfort and service, e.g., comfort on board, access
to lounges and better in-flight service. Productivity customers focus on flexible travel,
efficiency and saving time. They want to utilize their travel time productively. Low
fare customers do not want to pay for extras and want the lowest fare possible.

SAS has also introduced the brand name Snowflake on several of its international
flights, through which it wanted to enter the low-cost carrier market. A number of
airlines have entered that market during the last few years, offering a different
product for which customers pay a very low price. Customers get exactly what
they pay for, namely the right to fly; everything but the actual flight costs extra.
Since this concept is based totally on price, it does not offer the opportunity to de-
velop product advantages; therefore, it is completely different from SAS’s original
concept. Accordingly, SAS launched Snowflake, since management believed that it
could not accommodate low-cost products within and among its regular brand and
products. Snowflake, however, departs from ordinary SAS airports, not, like most
low-cost carriers, from remote airports. In a short time, Snowflake has become a
well-recognized and reputable brand among customers. Destinations offered on
Snowflake’s web site include, for instance, London, Frankfurt, Berlin, Brussels,
Düsseldorf, Milan, Nice and Rome. These destinations, and several others oper-
ated by Snowflake, also are served by at least one of the low-cost European carriers
Ryan Air and FlyNordic.

When a travel agency books an SAS ticket, it usually goes through the General
Distribution System, i.e. the GDS reservation system. It consists of reservation or-
ganisations such as Amadeus, Galileo and so on. SAS has to pay a fee for each
booking that goes through this reservation system. Snowflake, however, is an in-
dependent SAS-owned web site (www.flysnowflake.com) which, just like other
low-cost carriers such as Ryan Air, is not connected to the GDS booking system.
The same applies to SAS’s own web site. It is therefore cheaper for SAS when cus-
tomers book a travel on the SAS web site or Snowflake, rather than through travel
agencies, since SAS does not then have to pay the GDS booking fee.

The basic idea is that all products should be available in all channels, provided it is
cost efficient. Snowflake is therefore not available in the most expensive channels,


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since that is not possible from an economic point of view. This means that Snow-
flake’s tickets are available only on the Internet, through its own web site. Since
Snowflake fares are so cheap, it would not be profitable to include Snowflake in
the GDS reservation system, because the reservation fees, in relative terms, would
be too high.

SAS also has been working to stimulate e-behaviour by encouraging customers to
switch from paper tickets to e-tickets, which is the cheapest form of distribution.
E-tickets provide ticket-less travel, i.e. customers do not need a paper ticket to
check in. Instead, reservations are stored electronically in the SAS reservation sys-
tem, and customers can use, for instance, their credit card or their frequent flyer
card to make use of their reservation.

“Everyone gains from using e-tickets; we, the travel agency, and the customer. Customers
must realise that they do not need a piece of paper when flying Stockholm-Luleå. But to
change people’s behaviour and their way of thinking takes time. It does not happen over-
night. On the other hand, no one will buy a ticket to, for instance, Borneo, on the Internet,
and even fewer will go to Borneo on an e-ticket. If you are on Borneo, you want to be able to
show a paper ticket at the check-in desk.”
                   – Klavs Pedersen, Director of Product Coordination, SAS Sweden

”In a few years, paper tickets are expected to disappear completely.”
            – The SAS Group’s Annual Report & Sustainability Report 2004, p. 19

On 30 March 2005, Scandinavian Airlines Sweden commenced sales of 300,000
low-price tickets costing SEK 450 on all Swedish domestic destinations flown to in
2005. The fare includes all taxes and fees, and it applies to bookings made at
www.sas.se. It is also possible to book these tickets through travel agencies or by
telephone, but then the price might be slightly different due to other service fees.
From the same date, all domestic Swedish tickets have been exclusively e-tickets,
so if customers prefer a paper ticket, they must resort to SAS’s telephone sales or to
a travel agency and pay an extra fee (SEK 100 for SAS’s telephone sales).

“We know that people want to fly with SAS. With our new low fares and the highest num-
ber of destinations and departures, it will be attractive for everyone to fly with us.”
                                               – Anders Ehrling, President of SAS Sweden

The launching of low-price tickets was very successful; after just five days, SAS had
sold 50,000 of its 300,000 tickets.

“The ability to fly simply and more cheaply with SAS was clearly attractive. The response
from passengers, customers and travel agencies has been overwhelming. Or, as one traveller
expressed it yesterday, ‘Now we can return to flying with SAS!’”
                                            – Anders Ehrling, President of SAS Sweden

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

Causes of Channel Conflict
When SAS started to sell on the Internet, management was aware that it would
lead to conflict with the travel agencies. This was not something new to the Inter-
net marketing channel; on and off, there have been conflicts between SAS and its
resellers, even before the Internet was introduced. One reason is that SAS previ-
ously tried to increase its own telephone sales, which led to conflicts with the
agencies.

Starting on 1 January 2003, SAS removed the commission on sales of tickets to
travel agencies; at the same time the company reduced the prices of its tickets by
the same percentages as the agencies previously received in commissions. SAS was
one of the first European airlines to make this change, although several other air-
lines soon followed suit. The commission used to be compensation that it was
hoped would make travel agencies choose SAS instead of a competitor. Many
travel agencies, however, had reduced the prices to customers by the same amount
as the commission and then charged them a service fee; thus, in the end, the cus-
tomers paid just as much as before. Management therefore viewed the commission
as just a circulation of money. Another reason for the removal of the commission
was that SAS wanted to adapt to customers’ changing habits. Specifically, custom-
ers wanted to manage simple travel arrangements themselves, via the Internet.
When SAS removed the commission, travel agencies saw it as a move to make it
more expensive to purchase tickets through them than through SAS directly, and
especially via SAS’s Internet channel, something that caused conflict. However,
SAS states that even though adding the Internet caused some channel conflict,
management does not think that the Internet per se has caused any more channel
conflict than the company experienced before it was added.

“The Internet by itself has not caused any more channel conflict. It is very much about going
through a travel agency or bypassing them, and that takes place both with or without the
Internet. When the Internet was added it became clearer for travel agencies what we are doing
as an airline company. They can enter our web site and see our prices, our product offerings,
how we handle mass communication. They can see that we are always communicating that a
customer can either contact us or a travel agency. It is sort of a tacit understanding that it does
not matter which channel customers choose, as long as they fly with SAS.”
                   – Klavs Pedersen, Director of Product Coordination, SAS Sweden

Customers using the different marketing channels have very different profiles. The
majority of the customers who purchase tickets through SAS’s direct channels are
private individuals; there are very few business customers, and most of these repre-
sent small businesses. The routes sold through these channels are mainly simple, i.e.
from A to B and back. The majority of customers that purchase through travel
agencies, on the other hand, are companies and customers who purchase complex
routing; the more complex the routing, the more consultation a customer needs.

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Even so, the basis for conflict in the travel market is the fight for customers. Travel
agencies believe that SAS is trying to steal customers from them, that it is trying to
make customers purchase directly from SAS. SAS thinks that the channel conflict,
generally speaking, is caused by inadequate communication, which in turn leads to
insecurity; travel agencies are not sure which customer segment purchases tickets
where. Management also states that conflicts very often occur due to ignorance of
what the other party is doing, or why.

“Insecurity creates conflict. Conflict is often caused by lack of knowledge, i.e. that you do not
really know what is happening. Then it is easy to become defensive.”
                    – Klavs Pedersen, Director of Product Coordination, SAS Sweden

Assessing the Seriousness of Channel Conflict
SAS does not think there is much conflict in its relations with travel agencies. In
addition, management does not think that the conflict that occurred when the
Internet channel was introduced was a serious problem for the company. SAS did
not see any risk in bypassing its resellers when selling online, since some travel
agencies, e.g., Seat24 (www.seat24.se), sell only online, and they have access to the
same prices that SAS offers, just like all travel agencies that sell online. SAS’s large
partners, i.e. American Express, BTI Nordic, etc., have their own online solutions.

When SAS removed the sales commission to travel agencies, however, dangerous
conflict occurred. Although, as already stated, some travel agencies used the com-
mission as intended, others reduced the prices for tickets by the same amount as
the commission and then charged customers a services fee. There were still other
travel agencies that charged customers a service fee but kept the commission the
same; for those agencies, the change was even bigger. Accordingly, the removal of
the commission forced travel agencies that did not charge anything for their service
to introduce a service fee. As previously stated, some travel agencies also saw the
removal of commissions as a move to make it cheaper to purchase tickets through
SAS’s Internet channel than through travel agencies. According to the newspapers,
the resistance from travel agencies was very strong; several of them, as a protest,
tried to avoid booking customers with SAS. Management, however, states that be-
fore the change was made, SAS held long meetings with travel agencies, the Asso-
ciation of Swedish Travel Agents SRF8 (Svenska Resebyråföreningen), and major
customers (companies). As a result, the large travel agencies understood the neces-
sity for change. Although some smaller travel agencies protested, most of them ac-
cepted it.



8
  SRF is an organisation of which the majority of Swedish travel agents belong. SRF’s business con-
cept is to create the right conditions for travel agencies to develop profitable relationships with cus-
tomers and suppliers.

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

In the beginning, the online prices offered through SAS’s Internet channel were
lower than prices offered through other marketing channels. That is, SAS used to
have SAS online-only prices, in order to arouse interest in online sales and to push
development in that direction. But then SAS changed its approach, making those
prices available through both the SAS web site, and the travel agencies’ web sites,
i.e. online only. One reason for this is that the customers who did not have Inter-
net access called SAS telephone sales and expected to get the same price when pur-
chasing through that channel. SAS’s telephone sales channel thought that, since it
was a part of SAS, it also should be able to sell that SAS product. But management
could not offer SAS telephone sales the Internet product without offering it to the
travel agencies as well. Therefore, management has almost ended with lower
online prices, although SAS sometimes introduces campaigns with online-only
prices, these campaigns are also available to online travel agencies, i.e. to both
Internet agents and mixed agents (see Figure 2.7, p. 58). SAS has not offered SAS-
only prices for a long time now, in order to avoid channel conflict. However,
since 31 October 2004, EuroBonus9 customers earn 500 extra points if they book
their bonus flight on SAS’s Internet channel; a deal that is not offered through any
other marketing channel.

Although SAS could offer lower prices through its own marketing channels, as
these are not connected to the previously discussed GDS reservation system, man-
agement purposely has chosen not to offer lower prices in these channels in order
to avoid channel conflict. In addition, all travel agencies are offered the same
prices, since it is not in the interest of SAS to give certain travel agencies special fa-
vours; all SAS cares about is that a travel agency sells tickets on SAS, and not on its
competitors. Besides, end customers would get very upset if they realised that the
basic price would have been different had they bought a ticket through another
travel agency. In short, SAS does not have any conflict with its resellers about
prices, since the company offers uniform prices in all marketing channels.

“If we have said that we want to have SEK 1,000 for a seat between A and B, and we get
SEK 1,000 for that seat, we do not really care if the customer bought it through A, B, C,
or D. What we live on is that the customer is onboard, flying with SAS. The important
thing is that we have a working distribution network with full coverage, not that customers
use a certain part of the distribution network. If all our aircraft were full, well then we could
start to prioritise channels based on effectiveness. But, today, the most important thing is to
get customers aboard.”
                      – Klavs Pedersen, Director of Product Coordination, SAS Sweden

There are other conflict issues, however. Travel agencies think that they could
provide customers with better service had Snowflake been incorporated in the

9
    EuroBonus is the name of SAS’s frequent flyer program.

                                                 63
______ CHAPTER 2 ______________________________________________________________________________

GDS system, since it would be much faster and easier for them to find Snowflake
in their ordinary reservation system. But SAS’s purpose has never been to make
Snowflake available everywhere, just keep costs down. SAS also sees this as a po-
litical statement toward the GDS reservation system; with today’s price trend, air-
lines cannot afford to pay the high reservation fees that this system charges.

Another conflict issue is when travel agencies do not have their own online solu-
tion. Traditional agents feel bypassed by those who offer online sales, especially
since they do not have access to some of the products that are sold only online. In
addition, although SAS tries to be clear in its communication with travel agencies,
the agencies have sometimes misunderstood the meaning of a message.

Management states that, on the odd occasion, conflict between SAS and travel
agencies has led to customer confusion. Since customers have a relation both with
the travel agency and SAS, they get confused when they are stuck in the middle of
the conflict.

SAS uses no structured approaches to find out about conflict with its resellers.
However, the large travel agencies are visited about once a week or twice a
month. Although the contact is not as frequent with the smaller travel agencies,
SAS thinks that it keeps a close dialogue with these resellers also. In addition, SRF
have regular meetings with SAS. These dialogues give SAS a good sense of when
conflict exceeds appropriate levels.

Today, as far as the Internet is concerned, management does not experience mani-
fest channel conflict. The Internet is becoming ubiquitous, since more people are
using it to book airline and theatre tickets, search for information, etc. The under-
standing of the Internet as a marketing channel has increased in recent years, which
has led to less conflict. SAS does not see anything positive about channel conflict,
and therefore the goal is to avoid conflict with its channel partners.

Approaches to Minimise Channel Conflict
In order to avoid channel conflict, management states that it is important that both
parties are clear in their communication. It also has to do with trust, which is built
through good communication and good relationships. Therefore, SAS keeps a
rather close dialogue with travel agencies, especially since these represent the major
part of SAS’s sales and will continue to be very important to the company in the
foreseeable future. The communication with large travel agencies such as American
Express, BTI, CWT, etc., is handled through personnel assigned to the companies’
main offices. These persons make sure that agreements are followed, i.e. they de-
velop basic plans, work extensively with communication, help SAS promote prod-
ucts, and make sure that SAS also considers them. SAS also uses sales agents, nor-
mally small businesses that are responsible for providing information to several

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

smaller travel agencies. The sales agents visit these smaller travel agencies within a
certain district, making sure that the head of the agency as well as the personnel are
informed about SAS’ products, activities, etc. SAS puts a lot of effort into working
together with travel agencies on activities directed at end customers. Even though
SAS does not, and cannot, dictate how travel agencies market themselves, or what
products they market, SAS works with incentives and sometimes sponsors different
marketing campaigns. By doing so, SAS hopes to create win-win situations for it-
self and the agencies. Thus, the work of the sales agents is also concerned indirectly
with minimising and removing potential conflict.

Since SAS regards communication as an important factor in reducing conflict,
some years ago the company introduced an extranet to which travel agencies have
password access. All sales information is now published through the extranet, in
contrast to the old approach in which all information was sent to travel agencies by
fax. Since travel agencies are more or less pelted with information, the use of fax as
an information channel is very inefficient. The extranet offers travel agencies the
ability to search for information in one place, when they need it and with instant
access. It also makes it easier for SAS to highlight important issues.

As already stated, dangerous channel conflict occurred when SAS removed the
sales commission. SRF and SAS, therefore, held a number of meetings. Those
meetings led to some changes in terms and conditions. However, the travel agen-
cies, especially the small ones, still felt that SAS was making it more expensive for
customers to purchase tickets through them than directly from SAS. Therefore,
SAS simultaneously introduced service fees on sales made through its direct chan-
nels. The service fees were set at about the same price as the previous commissions.
The travel agencies, of course, decided themselves how much they would charge
customers for services provided.

“We set our service fees at a level that fairly corresponded to the previous commissions on
sales. At the same time, we said that it is not our business how much the travel agencies
charge their customers. They have to decide that themselves.”
                   – Klavs Pedersen, Director of Product Coordination, SAS Sweden

If a ticket cost SEK 1,000 at SAS, it cost the same amount at the travel agency. In
the beginning, for domestic Swedish travel SAS additionally charged SEK 100 as a
service fee when customers purchased the ticket on the Internet. Some travel
agencies duplicated this fee, without changes. Thus, at least there were no conflicts
about prices. Others charged a higher fee, since they provided customers with ad-
ditional services. On the other hand, some charged a lower service fee than SAS,
since their business concept was to sell high volumes at low prices. Thus, the com-
petition is really among the travel agencies, since they all receive the same prices



                                            65
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from SAS. Today, SAS’s Internet channel charges SEK 50 for domestic Swedish
travel. The fees for European or intercontinental travels are higher.

In recent years, SAS’s strategy has been to support its sales through all marketing
channels, including travel agencies, because it is the customers who decide where
to buy products. Customers who prefer a travel agency when purchasing a ticket
are likely to keep that preference; that is how it has been so far, at least. In other
words, as long as a customer purchases a ticket with SAS, management does not
care where the customer bought it.

“If a customer purchases an air ticket at a travel agency, and that travel agency sells an SAS-
ticket, then both the travel agency and SAS are satisfied. Hopefully the customer receives a
good product, and then everyone is satisfied.”
                   – Klavs Pedersen, Director of Product Coordination, SAS Sweden

Management states that the travel agencies are aware that customer profiles are dif-
ferent in the different marketing channels, among other things, since SAS regularly
informs them about this.

Unique Characteristics of the Internet
Management states that to make SAS’s extranet usable, it is important not to pub-
lish everything; otherwise, it would be impossible for users to process all the in-
formation. SAS utilizes a sort of 80/20-rule: Information that is relevant to most
agencies is published on the site, but information about how to handle an odd re-
quest, which occurs maybe every second year, is not published. That has been a
learning experience for SAS; in the beginning, since it is so easy to publish some-
thing on the extranet, the web site was too detailed.

SAS is also using the Internet to communicate with its EuroBonus customers. Fur-
thermore, business customers will soon get access to a special corporate site, where
they will be able to access their contracts, terms, statistics, etc.; such information,
instead of being paper-based, will be web-based. Thus, companies will have access
to the information at any hour of the day or night, and reservations can be made
when it is most convenient for customers. SAS still prints a small timetable for
Swedish domestic flights, but it no longer prints timetables with all SAS departures,
as it did until a couple of years ago. The timetables for all scheduled flights are in-
stead available online.

Management, however, wishes that SAS’s ordinary web site had been more user-
friendly from the beginning.




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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

“I wish that we have had a more user-friendly web site already from the beginning. Our web
site used to be too complicated. It must be easy to book, easy to understand, and easy to
handle.”
                   – Klavs Pedersen, Director of Product Coordination, SAS Sweden

On 31 March 2005, SAS launched a new web site that is much more user-friendly
than the old one. Customers no longer have to fill in unnecessary information just
to research travel options, and the new web site remembers the inserted informa-
tion in case visitors want to research another option during the same session, or if
customers return to the SAS web site after visiting another site; the old site did not
have these features.

The Internet has forced SAS to think in a totally different dimension. Management
has to make sure that SAS’s products are available in a channel that more and more
people, especially young people, are using to make purchases. The Internet has
brought a different way to search for products. Management thinks that the Inter-
net as a whole reduces both brand loyalty and distributor loyalty. SAS can see that
customers are researching its offerings, but that they also go to competitors’ web
sites to see what these can offer. Price has become a more important factor than it
used to be, at the expense of other product features. The introduction of compari-
son sites has accelerated this development. For instance, customers search for travel
between A and B. The alternatives are almost always listed according to price, with
the cheapest price first. It is therefore much more difficult on the Internet to con-
vey the message to customers that SAS offers better service, that they will get bet-
ter seats, better food, access to lounges, etc. All these augmented services become
of minor importance. Management therefore sees that the Internet contributes to
the impoverishment of products, i.e. it makes them ‘thinner’.

In addition, the Internet contributes to the dis-intermediation of travel agencies,
since customers do their own shopping. Also, there are so many comparison sites,
such as www.expedia.com, which make it easier for customers to plan their own
travel. The competition in the travel agency business is intense. Although some
customers still prefer to book a package tour with, e.g., Fritidsresor (affiliated com-
pany of Tui), many research the Internet and then book a seat and a hotel, i.e. they
arrange their own package tour. SAS thinks that although decreasing prices is good
for customers in some ways, it also means that customers have to spend more time
to find what they want, and that they often also get deprived of the added value
that they previously took for granted. When SAS took away free food on some of
its flights, some customers got very upset. But, with today’s price pressure, it is too
expensive to include food in the cheapest fares.




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Non-Internet-Related Channel Conflict
As previously stated, management does not think that SAS has experienced much
conflict with travel agencies. Occasionally, however, SAS has encountered channel
conflict that was dangerous to the company. This conflict has all been about who
owns the customer according to management, and for the most part it has not been
related to the Internet. For instance, SAS used to have contracts with large corpo-
rate customers, which travel agencies perceived as a restriction of competition. SAS
still has contracts with some of these large corporate customers, but the conditions
have changed, and travel agencies are involved to make sure that everything works
smoothly.

“I really do not feel that we have experienced much conflict with travel agencies. Rarely,
however, we have had dangerous conflict with travel agencies, but it did not have so much to
do with the Internet. The conflicts were about other issues, discussions about who owns the
customer.”
                                   – Klavs Pedersen, Director of Product Coordination

2.5 Analysis


F
2.5.1
       irst, a within-case analysis of each case, based on the frame of reference, will
       be presented. A cross-case analysis, in which the cases are compared to the
       frame of reference and to each other, will then be presented.

          Within-Case Analysis – Ducati
In this section, the empirical evidence from the Ducati case will be analysed based
on the frame of reference regarding the causes of channel conflict, the assessed se-
riousness of channel conflict, and the approaches to minimise channel conflict.

Causes of Channel Conflict
Table 2.6 includes an overview of the causes of channel conflict when the Internet
is added, including the conceptualisation, the measures, and Ducati’s assessment of
the role of the different causes of channel conflict. The grey colour indicates that
findings related to the causes of conflict do not match the frame of reference.

As expected from, for instance, Smith et al. (1999), Ducati experienced conflict
with its dealers when it started to sell on the Internet. Three different causes of
conflict were included in the frame of reference: goal incompatibility, domain dissensus
and inadequate communication.

Ducati’s dealers wanted to unveil new motorcycle models and be the meeting
point with customers. Ducati, on the other hand, wanted to get direct feedback
from its customers, to create entertainment for its customers, to jumpstart its Inter-



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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

net program, and to experiment outside the company’s ordinary distribution net-
work. Since the goals of the dealers and Ducati were incompatible, conflict occurred.

Also, conflict caused by domain dissensus occurred when Ducati started to sell on
the Internet. Coughlan et al. (2001) maintain that this kind of conflict can occur if,
e.g., bricks-and-mortar resellers provide customers with service without compensa-
tion, since the sales goes through the Internet channel, so called free-riding.
Table 2.6 Within-Case Analysis of the Causes of Channel Conflict – Ducati
 Conceptualisation-     Measure Used                                 Causes of Channel Con-
 Causes of Channel                                                   flict – Ducati
 Conflict
                        Assessment of the role of incompatible
                                                                     Conflict caused by goal in-
                        goals among channel members as a
 Goal Incompatibility                                                compatibility occurred be-
                        cause of conflict (as perceived by the re-
                                                                     tween Ducati and its dealers.
                        spondents)
                                                                     Conflict caused by domain
                                                                     dissensus occurred between
                                                                     Ducati and its dealers,
                        Assessment of the role of one channel        despite compensation of
                        member being bypassed by another             dealers for Ducati’s Internet
 Domain Dissensus
                        channel member as a cause of conflict        sales.
                        (as perceived by the respondents)            Conflict caused by domain
                                                                     dissensus had not increased
                                                                     due to the adding of the
                                                                     Internet channel.
                                                                     Conflict caused by inade-
                                                                     quate communication oc-
                        Assessment of the role of inadequate
                                                                     curred between Ducati and
 Inadequate Commu-      communication within the marketing
                                                                     its channel members,
 nication               channel as a cause of conflict (as per-
                        ceived by the respondents)                   and was judged to be the
                                                                     major cause of conflict by
                                                                     management.

In the case of Ducati, however, dealers received compensation for the service they
provided. Despite this, the dealers were upset because they wanted to provide the
service of unveiling motorcycles, and felt bypassed by Ducati, since they were
robbed of this chance. The dealers wanted to be the place where the action oc-
curred, and they wanted to be the starting point of the relationship with the cus-
tomers. This is in line with Stern and El-Ansary (1988), who discuss functions or du-
ties to be performed as one of four critical elements in the concept of channel do-
mains, i.e. the role of each channel member in the eight marketing flows (see
Chapter 1, Section 1.2.1 for a description of the marketing flows). In other words,
by selling motorcycles online, Ducati took over the function of being the first
meeting point with customers, a function which used to belong to the dealers;
thus, dealers felt bypassed. Dealers also felt bypassed by Ducati because they
thought that they could have sold the motorcycles themselves if they had just had

                                               69
______ CHAPTER 2 ______________________________________________________________________________

the opportunity. Then they would have received a full commission on the online
sale instead of the reduced commission. This represents the domain element popula-
tion to be served (cf. Stern & El-Ansary, 1988).

Nevertheless, according to management, the major cause of channel conflict when
Ducati added the Internet marketing channel was inadequate communication. That is,
when communication was not clear, consistent, homogeneous, and timely, or
when it was too redundant, conflicts occurred between Ducati and its dealers, be-
tween Ducati and its customers, between dealers and customers, and among the in-
ternal departments at Ducati.

In the literature, it is stated that the Internet will cause much more domain-related
conflict than before (e.g., Alba et al., 1997). Ducati, however, stated that although
it had experienced some channel conflict due to the addition of the Internet, it had
not experienced more conflict with its resellers than before that channel was added.
As already mentioned, inadequate communication was the major cause of conflict
when Ducati sold motorcycles online.

Ducati did not discuss any causes of conflict other than those included in the frame
of reference.

Assessing the Seriousness of Channel Conflict
The empirical findings related to assessing the seriousness of channel conflict are
presented in Table 2.7. The grey colour indicates that findings do not match the
frame of reference.

The suggested approaches suggested for measuring channel conflict range from
very structured (i.e. counting up the conflict issues as weighted by their impor-
tance, frequency of disagreements, and intensity of dispute (cf. Coughlan et al.,
2001)) to more informal approaches (i.e. evaluating customers’ and channel mem-
bers’ responses to the conflict (cf. Moriarty & Moran, 1990)). Ducati did not use
any structured approaches, such as formal surveys, to measure the level of conflict
with its dealers. Instead, when the Internet marketing channel was added, man-
agement spent a lot of time talking internally as well as to dealers. Management
states that the channel conflict that occurred when selling motorcycles online was
not dangerous to the company. Some problems occurred with its dealers, but
nothing that management judged as critical. To verify this statement, five ques-
tions, which were included in the frame of reference to judge the seriousness of
channel conflict, will be examined with reference to the collected data. The ques-
tions are: importance of channel, revenue in conflict, conflict issues, response of channel
members and response of customers.




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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

Table 2.7 Within-Case Analysis of the Seriousness of Channel Conflict – Ducati
 Conceptualisation -   Measure Used                     Seriousness of Channel Conflict –
 Assessing the Seri-                                    Ducati
 ousness of Channel
 Conflict
                       Assessment of the different      The reseller channels are extremely im-
                       marketing channels’ impor-       portant for Ducati, i.e. Ducati cannot
                       tance to the company (as         sell motorcycles without the help of
 Importance of Chan-   perceived by the respon-         dealers.
 nel                   dents)                           Before launching online sales of motor-
                                                        cycles, conflict reducing measures were
                                                        implemented to reduce conflict with
                                                        dealers.
                                                        Most of the customers who purchased
                                                        motorcycles through the Internet chan-
                                                        nel would have bought them through
                       Assessment of respondents’       dealers instead, if possible. Therefore,
                       view of the company’s dif-       although no real revenue was in con-
 Revenue in            ferent marketing channels        flict, the dealers’ perceived that the
 Conflict              serving the same customers       channels were serving the same custom-
                       (as perceived by the respon-     ers.
                       dents)
                                                        Customers purchasing apparel and/or
                                                        accessories online do not have a dealer
                                                        in their vicinity.
                                                        Four conflict issues (unranked) were
                                                        mentioned by Ducati:
                                                            Product availability
                       Assessment of the major              Customer assignment
                       conflict issues involved in          Reward system
 Conflict Issues       the channel relationship (as
                                                            Communication problems
                       perceived by the respon-
                       dents)                           Previous research identified pricing as
                                                        possibly the biggest generator of chan-
                                                        nel conflict, but pricing was not a con-
                                                        flict issue for Ducati.
                       Assessment of channel            In the beginning, the reactions from
 Response of Channel   members’ response to the         dealers were not judged as causing real
 Members               conflict (as perceived by the    problems for Ducati. This changed over
                       respondents)                     time.
                       Assessment of customers’ re-
                                                        Customers were not disturbed much by
 Response of Custom-   sponse to the channel con-
                                                        channel conflict between Ducati and its
 ers                   flict (as perceived by the re-
                                                        resellers.
                       spondents)
                       Assessment of how the            The most important consequence of
                       channel conflict affected the    creating channel conflict, due to by sell-
 Effect on Brand
                       company’s brand (as per-         ing motorcycles online was its positive
                       ceived by the respondents)       impact on Ducati’s brand.




                                              71
______ CHAPTER 2 ______________________________________________________________________________

Regarding importance of channel, the reseller channels are extremely important to
Ducati; it cannot sell motorcycles without the support of dealers, since, for in-
stance, someone with training has to refer the motorcycle to the customer. Bucklin
et al. (1997) state that any channel in conflict that is not in decline and carries more
than 10 to 15 percent of volume and/or profit needs attention. In agreement with
this, before launching online sales of motorcycles, Ducati implemented several
conflict reducing approaches, which will be discussed further under the next head-
ing. Although management knew that these sales would bring conflict with resel-
lers, the advantages of jumpstarting the company’s Internet program, and the ex-
perimentation outside the traditional network, were judged to be more advanta-
geous that the consequences of the conflict with resellers. Even so, after selling
motorcycles online four times, Ducati realised that it was too hazardous to risk
their relationships with their dealers. Therefore, the online sales of motorcycles
have come to a standstill. On the other hand, the online sales of apparel and acces-
sories have continued, but, according to management, for the time being they are
not important in terms of money.

Concerning revenue in conflict, i.e. whether two or more channels simultaneously
are serving the same customers with the same product (Moriarty & Moran, 1990),
the motorcycles sold on the Internet were not available in any other marketing
channel. However, management thought that, with a few exceptions, the custom-
ers who purchased a motorcycle online had the same profile as those who pur-
chased a motorcycle through a dealer. In other words, had the motorcycle been
sold through the dealer network instead, most of the same persons would have
bought it. So, somewhat contradictory to theory, although there was no real reve-
nue in conflict, since the motorcycles sold online were not sold through the dealer
channel, i.e. the channels did not serve the same customers simultaneously, almost
the same customers who purchased motorcycles through the Internet channel
would have bought them through dealers instead, if possible. Hence, dealers’ per-
ceptions were that Ducati was stealing their customers, i.e. that the channels were
serving the same customers. Regarding sales of apparel and accessories, customers
purchasing those products online were located far from a dealer. Thus, because the
geographical profile of these online customers is different from that of those who
purchase through dealers, there is no revenue in conflict.

The major conflict issues involved in Ducati’s channel relationship with its resellers
were product availability, the reward system, customer assignment and communication prob-
lems. Product availability concerns the dealers’ claim that they would have sold the
MH900e (and its successors) at the same rate if the motorcycle(s) had just been
given to them. This also produced discontent with the reward system, since if the
dealers had sold the motorcycles themselves, they would have received the full
commission instead of the reduced one they received from the online sales. Cus-
tomer assignment concerns the fact that dealers wanted Ducati to force fan clubs to


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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

be attached to them, which Ducati had decided not to do. Ducati did not want to
act like a policeman, and management liked the idea of a big heterogeneous ‘tribe’.
Communication problems occurred when dealers were misinformed by Ducati and
when customers got access to information before dealers did. Webb (1997) identi-
fied pricing, product availability, the reward system, customer assignment, promo-
tion and resource allocation as the major conflict issues in a marketing channel sys-
tem including the Internet. Three of these conflict issues (pricing, promotion and re-
source allocation) were not mentioned by Ducati. It did however mention communi-
cation problems, a conflict issue that was not identified in Webb’s research. More-
over, in Webb’s (1997) research, product availability referred to the difficulty to
match supply and demand on new products, meaning that sometimes certain hot
items were not available through all channels. For Ducati, on the other hand, it
meant that certain products were available only through the Internet channel. Also,
in Webb’s research, the reward system referred to the conflict between the objec-
tives of the various channels and what was best for the company, whereas for
Ducati, it referred to dealers’ dissatisfaction with the commissions received on
online sales. Furthermore, in Webb’s research, customer assignment referred to the
crossover between different channels, i.e. customers shopping in both outlets and
department stores, whereas for Ducati it referred to dealers’ desire to attach fan
clubs to them. According to Webb (1997), pricing was perhaps the greatest conflict
generator, but, as already stated, pricing was not mentioned by Ducati as a channel
conflict issue.

As for response of channel members, the clearest sign that channel conflict is exceeding
appropriate levels, according to McDonald (1999), is a higher than normal turn-
over rate of channel partners. When selling motorcycles online, Ducati got bad re-
actions from some of its resellers. But although some dealers were upset, none de-
cided to stop selling Ducati because of the online sales of motorcycles. Manage-
ment did not judge the reactions from dealers to be a critical problem for the com-
pany, but after selling four motorcycles online, it decided not to do anything that
might further weaken the dealer network. This is one reason why motorcycles
have not been sold online for two years, and it is also why management has no
plans to sell motorcycles online in the near future. Ducati still sells apparel and ac-
cessories, but the response from dealers on these sales has not been negative.

Regarding response of customers, management said that the channel conflict between
Ducati and its resellers when selling motorcycles online did not disturb Ducati’s
customers much. Instead, the conflict was very positive for Ducati, since the online
sales of motorcycles created excitement for the ‘fans’ and also allowed Ducati to get
direct feedback from customers.




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______ CHAPTER 2 ______________________________________________________________________________

One issue, the effect on brand due to the conflict, could not be included in any of
the above described categories. That is, Ducati chose to take the conflict with its
resellers about selling motorcycles online, among other things to create positive
publicity and excitement for Ducati’s fans. In other words, selling the MH900e
online created much positive response from the media and customers, which con-
tributed to building Ducati’s brand. Accordingly, the most important consequence
of Ducati creating the channel conflict with its resellers was the positive impact on
its brand.

Hence, it seems that the conflict resulting from selling the MH900e was not a seri-
ous problem for Ducati. Instead, it created the desired excitement for the com-
pany’s customers, it allowed management to get direct feedback from customers,
and to experiment outside the traditional network, and it helped to build Ducati’s
brand. However, after four online sales of motorcycles, there was no longer any
novelty, so the desired publicity did not transpire. Also, the profile of the online
customers was almost the same as that of offline customers, so the company was
not able to reach many new customers with its online sales of motorcycles. Since
dealers are so critical to selling motorcycles, regardless of the channel used, man-
agement decided that it was not worth risking its relationship with dealers any
longer. In other words, although Ducati said that it did not experience dangerous
channel conflict due to the online sales of motorcycles, it seems that, in the course
of time, management judged the channel conflict to be dysfunctional. Thus, the
online sales of motorcycles were paused. The online sales of apparel and accesso-
ries, on the other hand, did not cause any conflict between Ducati and its dealers.
These sales gave Ducati the opportunity to reach customers who were located far
from dealers and also allowed it to keep control of the Internet channel; therefore,
the online sales of accessories and apparel has continued. As management states,
there is no way to avoid Internet management, i.e. if Ducati does not manage the
Internet channel, its dealers will start to sell online, which would cause territorial
conflicts.

Approaches to Minimise Channel Conflict
Short descriptions of the findings on conflict reducing approaches are presented in
Table 2.8. The grey colour indicates findings that did not match the frame of refer-
ence. Six different approaches that can be used to reduce channel conflict were
identified in the frame of reference: institutionalised, pricing, product version, brand
name, compensation and communication approaches.

Institutionalised approaches refer to exchange-of-personnel programs, mediation, ar-
bitration, relationship-building activities, etc. Ducati utilizes some institutionalised
approaches. Since it is not possible to sell motorcycles without the support of deal-
ers, customers had to choose a reference dealer within the country to which the
motorcycle should be shipped. Although accessories and apparel sold online are

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

sent directly from Ducati to end customers, the same approach is used for those
sales, i.e. customers have to choose a reference dealer, thereby reducing channel
conflict. This approach is discussed with regards to compensation (e.g., Tsay &
Agrawal, 2004), but the customer choosing a reference reseller is actually an insti-
tutionalised approach, which does not necessary involve compensation. The results
from Ducati’s online sales are made public to dealers once a month. Furthermore,
Ducati sells used motorcycles (those used for various events) through its outlet in
Bologna. Customers can pick up the purchased motorcycle at no charge at any
Ducati dealer, i.e. the transportation is free for both for the customer and the
dealer. Ducati also shows new motorcycles at this outlet but it does not sell them;
instead, potential customers are referred to dealers. These approaches seem to be in
line with two of the three relationship-building dimensions identified by Heide
and John (1992): information exchange, which refers to channel members’ belief that
all relevant information should be shared freely, frequently, quickly and thor-
oughly; and solidarity, which refers to channel members’ belief that the channel re-
lationship should bring mutual benefits.

Three different pricing approaches, all of which can supposedly reduce channel con-
flict, were identified in the frame of reference: higher online prices, identical prices in
all marketing channels and auction pricing. The MH900e (and its successors) were
available only through the Internet channel; therefore, pricing was not an issue. A
large portion of Ducati’s accessories and apparel, however, is available through all
the company’s marketing channels. Ducati utilizes the MSRP, which means that
the online prices for apparel and accessories are the same as the prices offered
through dealers. Ducati states that pricing does not cause conflict with its dealers,
since, once shipping costs and duty are included, the total purchase prices offered
online are higher than those offered by dealers.

Product version approaches, i.e. when an offered product or product bundle is not
available through all the company’s marketing channels, has also been suggested as
a way to reduce channel conflict (e.g., Bucklin et al., 1997). Some of Ducati’s ac-
cessories and apparel are not available through all marketing channels. The reasons
are mainly legal and practical. That is, Ducati cannot legally sell anything directly
to end customers that can be dangerous if improperly mounted on a motorcycle.
For practical reasons, Ducati cannot sell, for instance, leather race suits to custom-
ers online, since they have to try them on to see which size they actually need.
Thus, these products are available only through dealers and, in line with theory,
channel conflict did not occur between Ducati and the resellers. Ancarani (2002)
claims that a producer can sell products online that are not offered through tradi-
tional channels without causing channel conflict. However, although Ducati of-
fered the MH900e (and its successors) only through the Internet channel, conflict
with its dealers occurred. These conflicts are one reason why motorcycles have not
been offered through the online channel for the past two years.


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______ CHAPTER 2 ______________________________________________________________________________

Table 2.8 Within-Case Analysis of Conflict Reducing Approaches – Ducati
 Conceptualisation –      Measure Used                Conflict Reducing Approaches – Ducati
 Conflict Reducing
 Approaches
                                                      Online customers have to choose a reference
                                                      dealer, within the country of product deliv-
                          Description of the in-      ery.
                          stitutional mecha-          Results from Ducati’s online sales are made
                          nisms utilized by           public to dealers monthly.
                          companies, intended
 Institutionalised Ap-                                Free transportation of used motorcycles from
                          to defuse disagree-
 proaches                                             Ducati’s outlet to dealers, if desired by a cus-
                          ments before they es-
                          calate into conflict (as    tomer.
                          described by the re-        Showing new motorcycle models in Ducati’s
                          spondents)                  outlet, but not selling them. Prospective cus-
                                                      tomers are referred to dealers.
                          Description of the
                          price levels used in
                                                      No conflict about pricing, since total pur-
                          different marketing
                                                      chase prices of apparel and accessories offered
 Pricing Approaches       channels to minimise
                                                      online are higher than total purchase prices
                          channel conflict (as
                                                      offered by dealers.
                          described by the re-
                          spondents)
                          Description of com-         Channel conflict occurred between Ducati
                          panies’ use of product      and its resellers when the MH900e was sold
 Product Version          version approaches          only through the Internet channel
 Approaches               (as described by the        Accessories and apparel available only
                          respondents)                through the dealer channel has not caused
                                                      channel conflict between Ducati and its re-
                                                      sellers.
                          Description of com-
                          panies’ use of brand
 Brand Name Ap-                                       Ducati did not use different brand names in
                          name approaches (as
 proaches                                             different channels.
                          described by the re-
                          spondents)
                                                      Reduced commission to the reference dealer
                                                      for delivering motorcycles sold online to end
                                                      customer.
                          Description of the
                          compensation ap-
                                                      Reduced commission to the reference dealer,
 Compensation Ap-         proaches used by
                                                      without its actual involvement, for online
 proaches                 companies (as de-
                                                      sales of accessories and apparel.
                          scribed by the re-
                          spondents)
                                                      Information about online customer to refer-
                                                      ence dealer was provided.




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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______


                                                  To reduce communication conflicts,
                                                  ducati.com was integrated with Ducati.
                        Description of the        A base text describing the positioning of a
                        communication ap-         product is distributed through all marketing
 Communication Ap-      proaches used by          channels to increase consistency of commu-
 proaches               companies (as de-         nication, thereby reducing channel conflict.
                        scribed by the re-        An extranet is used to reduce communica-
                        spondents)                tion conflict with resellers.
                                                  The web site is designed to minimise conflict
                                                  between different customer segments.


Ducati did not use different brand names in different marketing channels.

The development of compensation mechanisms of resellers has been a neglected by
companies, according to the literature (cf. Coughlan et al., 2001). Ducati, how-
ever, had already developed a method for compensating resellers for online sales
before the Internet channel was added. The compensation consisted of a commis-
sion that was lower than the ordinary commission for a motorcycle. Although the
dealers had no costs for marketing, inventory, etc., they were at least compensated
for delivering the motorcycle to the customer. Dealers also are compensated for
online sales of accessories and apparel. Also in this case, the commission is lower
than the commission for sales made directly by the dealer. In this case, however,
the dealer is not involved at all in the sales; the only reason the dealer receives the
commission is that the customer chose that dealer as reference dealer (the customer
must choose a dealer for an online purchase). Besides compensation in the form of
money, dealers also get access to information about the customers. This offers them
the opportunity to contact those online customers who chose them as reference
dealer, in order to invite them to events, etc.

Although the necessity of good communication within a marketing channel system
for the purpose of avoiding channel conflict is discussed by researchers (Etgar,
1979; Mohr & Nevin, 1990; Coughlan et al., 2001), no suggestions were found in
the literature about how this should be done. Ducati, however, utilized several
communication approaches. For example, management integrated ducati.com with
Ducati in order to reduce the conflict due to differences in the communicated
messages, and now all community personnel are gathered in the same large, open
working area at Ducati’s main office. To make sure that a product is positioned the
same way in all marketing channels, management developed a base text about the
positioning, which then was distributed through all marketing channels, both in-
ternally and externally. The use of base texts also helps Ducati avoid conflict with
and among its customers. Many customers are more educated about the motorcy-
cles than are Ducati’s marketers, sales people, and executives; also, customers have


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different entry points to the brand. Therefore, the communicated message has to
be very clear to keep conflict from becoming too intense. Ducati also uses an ex-
tranet to improve communication with its resellers, which has reduced conflict
within the distribution network. To minimise conflict among different customer
segments, Ducati’s web site is designed according to the concept of totem, in order
to get customers to appreciate the whole world of Ducati, regardless of which en-
try point (the engine, the design, racing, etc) they have to the company.

2.5.2      Within-Case Analysis - SAS
In this section, the empirical evidence from the SAS case will be analysed, based on
the frame of reference, regarding the causes of channel conflict, the assessed seri-
ousness of channel conflict, and approaches to minimise channel conflict.

Causes of Channel Conflict
The empirical findings on the causes of channel conflict when adding the Internet
are presented in Table 2.9. The grey colour indicates that findings do not match
the frame of reference.
Table 2.9 Within-Case Analysis of the Causes of Channel Conflict – SAS
 Conceptualisation –       Measure Used                         Causes of Channel Conflict –
 Causes of Channel                                              SAS
 Conflict
                           Assessment of the role of incom-
                                                                Conflicts caused by goal incom-
                           patible goals among channel
 Goal Incompatibility                                           patibility occurred between SAS
                           members as a cause of conflict (as
                                                                and the travel agencies.
                           perceived by the respondents)
                           Assessment of the role of one
                           channel member being bypassed        Conflicts caused by domain dis-
 Domain Dissensus          by another channel member as a       sensus occurred between SAS
                           cause of conflict (as perceived by   and its channel members,
                           the respondents)
                                                                Conflicts caused by inadequate
                           Assessment of the role of inade-
                                                                communication occurred be-
                           quate communication within the
 Inadequate                                                     tween SAS and travel agencies,
                           marketing channel as a cause of
 Communication                                                  and was judged by management
                           conflict (as perceived by the re-
                           spondents)                           to be one of the major causes of
                                                                conflict with travel agencies.

When SAS added the Internet channel to its existing marketing channels, man-
agement states that even though some channel conflict did occur, the Internet per
se did not contribute to it. Even so, conflict occurred both with SAS’s other direct
channels and with its resellers, i.e. the travel agents. The three causes of conflict in-
cluded in the frame of reference were goal incompatibility, domain dissensus and inade-
quate communication.



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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

As pointed out by Friedman and Furey (1999), both suppliers and resellers want to
maximise their profits, which might lead to goal-related conflict. This is what hap-
pened when SAS added the Internet channel, i.e. conflicts occurred because of in-
compatible goals; SAS wanted to increase sales through its Internet channel, whereas
travel agencies, of course, wanted to increase sales through their own channels. In
offering Snowflake only through an SAS-owned web site, management’s main goal
was to keep costs down. Travel agencies, however, reacted to this, since their goal
is to provide customers with the best service. Therefore, they think that it would
have been better had Snowflake been incorporated into the GDS reservation sys-
tem, as it is much easier for them to research their ordinary reservation system than
a separate web site. Another reason for conflict caused by incompatible goals is that
travel agencies wanted to keep the sales commissions, which were a large source of
income. SAS, on the other hand, decided to remove the commissions, since they
were just a circulation of money and the company wanted to adapt to customers’
increasing preference to handle simple travel themselves.

According to Stern and El-Ansary (1988), the four critical elements of a channel
domain are the population to be served, the territory to be covered, the functions or tasks to
be performed and the technology employed. Management states that the source of con-
flict in the travel market is the fight for customers. As for the population to be served,
customers who purchase through different channels have rather different profiles.
Those who purchase through travel agencies are mainly businesses, or private per-
sons who purchase complex routes, whereas those who purchase through SAS’s di-
rect channels mainly purchase simple routes from A to B. However, it is the cus-
tomer who decides where to purchase a ticket, which means that there are no in-
disputable boundaries between different customer segments. Travel agencies,
therefore, believe that SAS, through its direct channels, is trying to steal their cus-
tomers. Regarding territory to be covered, the only limitation is that some products
are available only through the Internet channel. However, this applies to SAS as
well as the travel agencies. Concerning functions or tasks to be performed, if customers
want paper tickets for Swedish domestic flights, they have to contact SAS’s tele-
phone channel or a travel agency, since only e-tickets are sold on the Internet.
Hence, the technology employed in this case is the Internet. However, even though
these products are available only on the Internet, conflict arose because SAS’s tele-
phone channel and the traditional travel agencies (which lacked an Internet chan-
nel) felt bypassed and, therefore, also wanted access to e-tickets. In other words,
conflict caused by domain dissensus occurred both between SAS’s direct channels,
and between SAS and its travel agencies.

Conflicts caused by inadequate communication also occurred between SAS and its re-
sellers. When travel agencies did not know which customer segment purchased
tickets where, or why SAS was doing something, channel conflict occurred.



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Therefore, management generally attributed the channel conflict to inadequate
communication.

As already stated, it is often implied that when the Internet channel is added, there
will be more conflict caused by domain dissensus than before (e.g., Alba et al.,
1997). Even though SAS management said that domain dissensus and inadequate
communication were the major causes of the channel conflict, it claimed that add-
ing the Internet channel did not increase the conflict.

Assessing the Seriousness of Channel Conflict
The empirical findings on the assessment of the seriousness of channel conflict are
presented in Table 2.10. Findings that do not match the frame of reference are
marked in grey.

SAS’ representatives visit travel agencies quite often. In addition, SAS holds regular
meetings with the Association of Swedish Travel Agents, SRF. Although this is not
a structured approach to measure channel conflict, as suggested by Couglan et al.
(2001), the meetings with travel agencies and SRF give SAS a good understanding
of when conflicts exceeded appropriate levels. Management thinks that SAS has
not experienced much conflict with travel agencies and that the dangerous conflicts
that have occurred had little to do with the Internet marketing channel. Neverthe-
less, five questions were included in the frame of reference to assess the seriousness
of channel conflict: importance of channel, revenue in conflict, conflict issues, response of
channel members and response of customers.

Bucklin et al. (1997) claim that a channel in conflict needs attention if it is not in
decline and/or carries more than 10 to 15 percent of volume and/or profit. Since
between 56 percent (in Norway) and 84 percent (SAS International) of SAS’s res-
ervations were made through travel agencies, the travel agency channels were very
important for SAS. Sales through both the SAS and travel agencies’ Internet chan-
nels have increased in terms of market share, but according to SAS this increase
came mainly from SAS’s telephone sales, and not so much from travel agencies. In
accordance with Bucklin et al. (1997), SAS took several measures, discussed under
the next heading, to reduce the conflict that occurred when the sales commission
was removed.

Regarding revenue in conflict, i.e. whether two or more channels simultaneously
serve the same customers (Moriarty & Moran, 1990), management says that the
customers who purchase tickets through SAS’s direct channels are quite unlike
those who purchase through travel agencies; hence, for the most part, the channels
serve different customer segments.




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Table 2.10 Within-Case Analysis of the Seriousness of Channel Conflict – SAS
 Conceptualisation –     Measure Used                Seriousness of Channel Conflict –
 Assessing the Seri-                                 SAS
 ousness of Channel
 Conflict
                                                     The travel agency channels are very im-
                         Assessment of the dif-      portant for SAS, since between 56% and
                         ferent marketing chan-      84% of SAS’ reservations are made through
 Importance of Channel   nels’ importance to the     travel agencies.
                         company (as perceived       Conflict reducing measures were taken af-
                         by the respondents)         ter removing the commission on sales to
                                                     travel agencies.
                         Assessment of respon-
                         dents’ views on the
                                                     Customers purchasing through SAS’s di-
                         company’s different
 Revenue in                                          rect channels are different from customers
                         marketing channels
 Conflict                                            purchasing through travel agencies’ chan-
                         serving the same cus-
                                                     nels.
                         tomers (as perceived by
                         the respondents)
                                                     Five conflict issues were mentioned by
                                                     SAS:
                                                         Pricing
                                                         Customer assignment
                         Assessment of the major
                                                         Product availability
                         conflict issues involved
 Conflict Issues         in the channel relation-        Reward system
                         ship (as perceived by           Communication problems
                         the respondents)            Previous research identified pricing as the
                                                     possibly largest generator of channel con-
                                                     flict. But the removal of the commission,
                                                     i.e. the reward system, was the most dan-
                                                     gerous conflict issue for SAS.
                         Assessment of channel
                         members’ responses to       The reactions from travel agencies when
 Response of Channel
                         the conflict (as per-       removing the commission was dangerous
 Members
                         ceived by the respon-       to SAS.
                         dents)
                         Assessment of custom-
                         ers’ responses to the       Customers were not much disturbed by
 Response of Customers   channel conflict (as per-   channel conflict between SAS and the
                         ceived by the respon-       travel agencies.
                         dents)
                         Assessment of how the
                                                     The channel conflict that occurred when
                         channel conflict affected
                                                     removing the commission on sales to travel
 Effect on Brand         the company’s brand (as
                                                     agencies most likely had a negative impact
                         perceived by the re-
                                                     on SAS’s brand.
                         spondents)




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______ CHAPTER 2 ______________________________________________________________________________

The major conflict issues involved in SAS’s channel relationship with the travel
agencies were pricing, product availability, the reward system, customer assignment and
communication problems. Pricing refers to the fact that, after the Internet was intro-
duced, prices offered through SAS’s Internet channel were lower than prices of-
fered through other marketing channels, since SAS wanted to arouse interest in
online sales. However, both SAS’s telephone channel and the travel agencies were
upset by this approach. Therefore, SAS has ended lower online prices, except for a
few campaigns which are also available to Internet agents and mixed agents, i.e.
travel agencies with an Internet channel. Product availability concerns the fact that
some products are sold only through the Internet, a policy that traditional agents,
i.e. travel agencies without an Internet channel, resist. Also, SAS’s telephone chan-
nel thinks that they should have access to Internet products as well, since they are
part of SAS. In addition, offering Snowflake only through a company-owned web
site, rather than within the GDS reservation system, has caused conflict with travel
agencies. According to management, when the reward system was changed, i.e. the
commission removed, it caused dangerous conflict between SAS and travel agen-
cies. One reason for this was that travel agencies saw it as a move to bypass them,
i.e. to move ticket sales from them to SAS’s Internet channel. According to the
newspapers, it even motivated travel agencies to stop booking SAS tickets as a pro-
test. But, according to management, after long discussions with travel agencies’
representatives, and changes in approach such as the introduction of service fees
from SAS’s side, most travel agencies understood the necessity for the change.
Thus, today, SAS offers no sales commissions. The travel agencies have adjusted
and are now charging customers service fees instead. While this conflict was in full
progress, however, newspapers wrote several articles about it, which made custom-
ers (and others) aware of the conflict. This confirms McDonald’s (1999) contention
that the conflict was quite serious. Customer assignment refers to the crossover be-
tween different channels, i.e. customers purchasing tickets through SAS’s direct
channels as well as through travel agencies. Even though SAS tries to be clear in its
communications with travel agencies, conflicts sometimes occur, because travel
agencies misinterpret the message; thus, communication problems was also a conflict
issue. In his research of a company using multiple marketing channels, including
the Internet, Webb (1997) identified pricing, product availability, the reward sys-
tem, customer assignment, promotion and resource allocation as the major conflict
issues. As can be seen, two of these issues, promotion and resource allocation, were not
mentioned by SAS. Communication problems, on the other hand, formed a conflict
issue that, although mentioned by SAS, was not identified in Webb’s research.
Furthermore, the meaning of product availability in SAS’s case is different from
that in Webb’s (1997) research, since for Webb product availability refers to the diffi-
culty in matching supply and demand for new products. This meant that on occa-
sion certain hot items were not available through all channels, while for SAS it
meant that some products were only available through the Internet channels. Also
the reward system has a different meaning for SAS than the one provided by Webb


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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

(1997). Whereas for Webb it refers to the objectives of the different channels being
at odds with what was best for the company, for SAS it means that travel agencies
were dissatisfied with the removal of the commission on sold tickets. Webb cites
pricing as perhaps the greatest generator of channel conflict. In SAS’s case, how-
ever, the reward system was identified as the issue causing the most dangerous con-
flict between SAS and the travel agencies.

Concerning response of customers, SAS said that on only a few occasions were cus-
tomers confused because of the conflict between SAS and the travel agencies. In
other words, the channel conflict between SAS and its resellers disturbed SAS’s
customers very little. However, since so much had been written in the media
about the conflict that occurred when the commission was removed, customers
became very aware of the conflict.

When SAS removed the sales commission, the media mostly reflected the travel
agencies’ perspective on the conflict, reporting that travel agencies even tried to
avoid booking customers with SAS. Therefore, the publicity most likely had a
negative effect on SAS’s brand. However, the effect of channel conflict on a com-
pany’s brand is not discussed in the channel management literature.

Approaches to Minimise Channel Conflict
The empirical findings related to SAS’s conflict-reducing approaches, when it
added the Internet, are presented in Table 2.11). Findings that do not match the
frame of reference are marked in grey. In the frame of reference, six different ap-
proaches to reduce channel conflict were included: institutionalised, pricing, product
version, brand name, compensation and communication approaches.

Institutionalised approaches refer to joint membership in trade organisations, ex-
change-of-personnel programs, mediation, arbitration, relationship-building activi-
ties, etc. Joint membership in trade associations (Coughlan et al., 2001) can be
compared to SAS’s regular meetings with the Association of Swedish Travel
Agents (SRF), the organisation representing most of the Swedish travel agencies.
SAS also keeps close contact with travel agencies; it visits them often (sometimes as
often as twice a month), works closely with them in implementing activities aimed
at end customers, and tries to create win-win situations for itself and the travel
agencies. Visits to smaller travel agencies are handled by sales agents. These meet-
ings aim first of all to inform travel agencies about new products, campaigns, etc.,
but since management thinks that trust is important in preventing conflict, and that
trust is built through good communication and a good relationship, these meetings
indirectly also help to minimise or prevent channel conflict. This institutionalised
approach seems to be in accordance with two of the three relationship-building
dimensions identified by Heide and John (1992): information exchange, which refers
to channel members’ expectations that all relevant information should be shared

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freely, frequently, quickly and thoroughly; and solidarity, i.e. that channel members
mutually try to build the relationship.
Table 2.11 Within-Case Analysis of Conflict Reducing Approaches – SAS
 Conceptualisation       Measure Used                       Conflict Reducing Approaches –
 – Conflict Reduc-                                          SAS
 ing Approaches
                         Description of the institutional
                                                            SAS engaged in relationship building
                         mechanisms utilized by com-
                                                            activities, i.e. regular meetings with
 Institutionalised Ap-   panies to defuse disagreements
                                                            travel agencies, and meetings with
 proaches                before they escalate into con-
                                                            SRF.
                         flict (as described by the re-
                         spondents)
                                                            SAS used to offer lower prices
                                                            through its own Internet channel
                                                            than through all other channels,
                                                            which caused channel conflict.
                         Description of the price levels    SAS introduced a service fee on its
                         used in different marketing        sales when the commission to travel
 Pricing Approaches      channels to minimise channel       agencies was removed, to make it
                         conflict (as described by the      easier for travel agencies to charge for
                         respondents)                       their services.
                                                            Today SAS offers identical prices in
                                                            all marketing channels and, some-
                                                            times, lower online prices through all
                                                            Internet channels.
                         Description of companies’ use      SAS’ uses the product version ap-
 Product Version Ap-     of product version approaches      proach to target different customer
 proaches                (as described by the respon-       segments through different marketing
                         dents)                             channels.
                                                            The brand name Snowflake was in-
                                                            troduced to compete with low-cost
                                                            carriers, on a web site detached from
                         Description of companies’ use
 Brand Name Ap-                                             the GDS reservation system, which
                         of brand name approaches (as
 proaches                                                   caused ‘conflict’ with travel agencies.
                         described by the respondents)
                                                            In a short period of time, Snowflake
                                                            became a well-known and reputable
                                                            brand.
                         Description of the compensa-
                                                            SAS did not compensate travel agen-
 Compensation Ap-        tion approaches used by com-
                                                            cies for sales made through SAS’s di-
 proaches                panies (as described by the re-
                                                            rect channels.
                         spondents)
                                                            In advertising, reference is given both
                         Description of the communi-
                                                            to SAS directly and to travel agencies.
 Communication Ap-       cation approaches used by
 proaches                companies (as described by the     An extranet is used to reduce com-
                         respondents)                       munication conflict with travel agen-
                                                            cies.




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Concerning pricing approach, in the beginning, prices available at the SAS web site
were lower than those offered to travel agencies or through SAS’s telephone sales,
since SAS wanted to arouse interest in online sales. This approach, however,
caused channel conflict. SAS decided to offer the same online prices to travel agen-
cies with Internet sales, even though it is cheaper for SAS when customers pur-
chase tickets through SAS’s direct channels, which are not connected to the GDS
reservation system. SAS’s telephone channel and those travel agencies without
Internet sales were not content with this approach, however. SAS therefore has
ended online-only prices, except for certain campaigns that are also available to
travel agencies with Internet sales. Moreover, in order to avoid conflict, SAS has
not offered SAS-only prices for a long time. In addition, to minimise conflict
when removing the commission on travel agencies’ sales, SAS introduced a service
fee on sales made through its direct channels. However, SAS does not charge this
service fee to make it more expensive to purchase tickets through its channel, as
suggested by King (1999). Instead, the purpose of the service fee was to make it
easier for travel agencies also to charge a service fee. Furthermore, SAS’s pricing
approach is not very similar to those identified in the literature review; prices are
not always identical in all marketing channels, and they are not always lower
online. Since all travel agencies are offered the same base prices as the ones SAS of-
fers through its Internet channel, provided they utilize the Internet marketing
channel, SAS does not experience any dangerous conflict with its resellers about
pricing, although online prices sometimes are lower.

In the literature, multiple products or versions was suggested as a conflict-reducing
mechanism (e.g., Ancarani, 2002), since it gives management the opportunity to
target different customer segments through different channels. SAS utilizes the
product version approach, i.e. it only offers e-tickets through its Internet channel
on Swedish domestic flights. If customers prefer a paper ticket, they have to turn to
SAS’s telephone sales or a travel agency and pay an extra fee. In other words, SAS’s
product version approach serves as a way to target different customers through dif-
ferent marketing channels, as suggested in the literature.

Regarding different brand names in different marketing channels, SAS offers Snow-
flake, a brand aimed at the low-cost carrier market, solely through its own web
site, www.flysnowflake.com. According to Gulati and Garino (2000), the decision
of whether or not to use different brands in different marketing channels largely
comes down to a choice between flexibility and trust. In SAS’s case, however,
Snowflake quickly became a well-known and reputable brand. It, therefore, seems
that offering different brands in different marketing channels does not always have
to involve a choice between flexibility and trust. The brand name approach has
been suggested as a way to avoid channel conflict (e.g., Coughlan et al., 2001).
This was, however, not the major reason why SAS introduced Snowflake; it was
introduced because SAS wanted to compete in the low-cost carrier market. Also,


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______ CHAPTER 2 ______________________________________________________________________________

management did not think it was possible to accommodate such a product within
the SAS brand, because a low-cost carrier is totally different from what SAS previ-
ously offered. Customers now purchase the right to fly from A to B, and if they
want more than the flight per se, they have to pay extra. Therefore, to keep costs
down, the Snowflake web site was launched. By using this approach, SAS does not
have to pay any reservation fees, since the web site, just like those of its low-cost
competitors’, is not connected to the GDS reservation system. However, this ap-
proach makes it more difficult for travel agencies to make a reservation; instead of
the traditional approach of booking tickets through the GDS system, they need to
go to Snowflake’s web site to effect a reservation. Some travel agencies objected
that this made it more difficult to serve customers well. Thus, when SAS decided
to offer a different brand through a separate web site, it did not come without fric-
tion.

Compensation to travel agencies for sales made through SAS’s direct channels was
not utilized by SAS.

Concerning communication approaches, management states that to avoid conflict with
channel partners it is important to communicate clearly. The extranet, which SAS
introduced some years ago, helps SAS in its communication with travel agencies.
For instance, all sales information is published through the extranet. The extranet
also makes it easier for SAS to highlight certain important issues. Furthermore, in
its advertising, SAS tells its customers that they can contact either SAS directly, or a
travel agency, to make a reservation. The latter method seems to be in accordance
with one of the three relationship building dimensions identified by Heide and
John (1992), i.e. solidarity, which refers to channel members’ belief that the channel
relationship should bring mutual benefits.

2.5.3      Cross-Case Analysis
The cross-case analysis is based on the within-case analyses presented earlier in this
chapter. The cross-case analysis is, like the within-case analyses, structured in ac-
cordance with the frame of reference. It will start by comparing the causes of channel
conflict when adding the Internet, followed by assessing the seriousness of channel conflict
and approaches to minimise channel conflict.

Causes of Channel Conflict
The findings from both cases are presented schematically in Table 2.12. Departures
from the frame of reference are marked in grey.

In agreement with theory (e.g., Smith et al., 1999), channel conflict occurred for
both Ducati and SAS when the Internet was added to their existing marketing
channels, even though both companies stated that the Internet per se had not con-
tributed to more channel conflict. When analysing the data related to the causes of

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

conflict when adding the Internet, some similarities and dissimilarities can be iden-
tified between the two cases. The three causes of conflict included in the frame of
reference, i.e. goal incompatibility, domain dissensus and inadequate communication, oc-
curred in both cases. No other causes of conflict could be identified for either case.
Both Ducati and SAS stated that adding the Internet marketing channel did not
contribute to more conflict with its resellers. Furthermore, contrary to the litera-
ture (e.g., Alba et al., 1997), both Ducati and SAS claimed that conflicts caused by
domain dissensus had not increased due to adding the Internet.
Table 2.12 Cross-Case Analysis of the Causes of Channel Conflict
 Conceptualisation –    Causes of Channel Conflict         Causes of Channel Conflict –
 Causes of Channel      – Ducati                           SAS
 Conflict
                        Conflicts caused by goal in-       Conflicts caused by goal incom-
 Goal Incompatibility   compatibility occurred between     patibility occurred between SAS
                        Ducati and its dealers.            and the travel agencies.
                        Conflicts caused by domain dis-    Conflicts caused by domain dissen-
                        sensus occurred between            sus occurred between SAS and its
                        Ducati and its dealers,            channel members.
                        despite compensation to dealers
                        for Ducati’s Internet sales.
                                                           Domain dissensus was judged by
                                                           management to be one of the ma-
                                                           jor causes of conflict with travel
                                                           agencies.
 Domain Dissensus       Conflicts caused by domain dis-    Conflicts caused by domain dissen-
                        sensus were mostly related to      sus were mostly related to the
                        the population to be served,       population to be served.
                        as well as functions or tasks to
                        be provided.
                        Conflicts caused by domain dis-    Conflicts caused by domain dissen-
                        sensus had not increased due to    sus had not increased due to the
                        the adding of the Internet         adding of the Internet channel, ac-
                        channel, according to manage-      cording to management.
                        ment.
                        Conflicts caused by inadequate     Conflicts caused by inadequate
                        communication occurred be-         communication occurred between
                        tween Ducati and its channel       SAS and travel agencies.
 Inadequate             members.
 Communication                                             Inadequate communication was
                        Inadequate communication was
                                                           judged by management to be a ma-
                        judged to be the major cause of
                                                           jor cause of conflict with travel
                        conflict by management.
                                                           agencies.

However, dissimilarities also could be identified in the comparison of the cases.
Ducati judged inadequate communication to be the major cause of conflict with its
dealers, while SAS judged both inadequate communication and domain dissensus to be
the major causes of conflict with travel agencies. Even though dealers were com-

                                            87
______ CHAPTER 2 ______________________________________________________________________________

pensated for Ducati’s online sales of motorcycles, contrary to theory (cf. Coughlan
et al., 2001) domain dissensus caused conflicts. The dealers felt bypassed by Ducati,
since they wanted to be the starting point of the relationship with customers. In
other words, domain conflicts occurred about functions or tasks to be provided. SAS,
however, did not discuss this aspect of domain dissensus. For SAS, although cus-
tomers decide the channel through which they want to purchase tickets in the
travel market, and although the travel market is rather segmented, domain conflicts
resulted from discussions of who owns the customer, i.e. the population to be served.
This aspect was discussed also by Ducati, since dealers thought that they could have
sold the motorcycles themselves if they had just been given the opportunity,
thereby earning the full commission instead of the reduced one they received on
Ducati’s online sales. Hence, also in the Ducati case, domain conflicts resulted from
discussions of who owns the customers, i.e. the population to be served.

Assessing the Seriousness of Channel Conflict
The findings on the cross-comparison of the cases are summarised in Table 2.13.
Those that do not match the frame of reference are marked in grey.

Neither Ducati nor SAS used any of the structured approaches suggested in the lit-
erature to measure the seriousness of channel conflict. Moriarty and Moran (1990)
suggest a rather informal approach for assessing the magnitude of the conflict, i.e.
asking questions about how much revenue a company has in conflict, where the
conflict is, how channels and customers react to it, and how much time manage-
ment spends dealing with the conflict. The approach utilized by both Ducati and
SAS to find out about conflict seems to have been especially informal, since both
companies stated that they spent a lot of time talking with channel partners, and, in
SAS’s case, meeting with the trade association. However, none of them discussed
any other ways to measure the level of conflict with its channel partners besides
these meetings. Nevertheless, to assess the seriousness of channel conflict, five
questions were included in the frame of reference: importance of channel, revenue in
conflict, conflict issues, response of channel members and response of customers.

The reseller channels are extremely important for both for Ducati and SAS. It is
not possible for Ducati to sell motorcycles without the assistance of dealers, and at
least 56 percent of SAS’s tickets are sold via travel agencies. According to Bucklin
et al. (1997), a channel in conflict needs attention if it is not in decline and/or car-
ries more than 10 to 15 percent of volume and/or profit. Both Ducati and SAS
addressed the conflicts with their resellers. There is a difference, though, between
the companies: Ducati implemented several conflict-reducing measures before
launching online sales of motorcycles, whereas SAS introduced its conflict-
reducing measures after the sales commission to travel agencies was removed.
(These conflict-reducing approaches will be further discussed under the next head-
ing).


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Table 2.13 Cross-Case Analysis of the Seriousness of Channel Conflict
 Assessing the      Assessing the Seriousness of              Assessing the Seriousness of
 Seriousness of     Channel Conflict – Ducati                 Channel Conflict – SAS
 Channel
 Conflict
 Approach to        Meetings with channel partners, but       Meetings with channel partners and
 measure conflict   no formal approach to measure level       trade association, but no formal ap-
 with channel       of conflict with channel partners.        proach to measure level of conflict
 partners                                                     with channel partners.
                    The reseller channels are very impor-     The travel agency channels are very
                    tant for Ducati, since Ducati cannot      important for SAS, since between
                    sell motorcycles without the help of      56% and 84% of SAS’s reservations
 Importance of      dealers.                                  are made through travel agencies.
 Channel            Before launching online sales of mo-      Conflict reducing measures were
                    torcycles, conflict reducing measures     taken after removing the commis-
                    were implemented to reduce conflict       sion on sales to travel agencies.
                    with dealers.
                    The customers purchasing through          Customers purchasing through
                    the Internet channel had the same         SAS’s direct channels are different
                    profile as regular customers.             from customers purchasing through
                                                              travel agencies’ channels.
                    Therefore, although the channels
 Revenue in         were not simultaneously serving the
 Conflict           same customers with the same prod-
                    uct, dealers’ perceived that there was
                    revenue in conflict.
                    Customers purchasing apparel and/or
                    accessories online are customers who
                    do not have a dealer in the vicinity

                                                              Five conflict issues were men-
                                                              tioned by SAS:
                    Four conflict issues were mentioned          Pricing
                    by Ducati:                                   Customer assignment
                       Product availability                      Product availability
                       Customer assignment
                       Reward system                              Reward system
 Conflict Issues       Communication problems                     Communication problems
                    Previous research identified pricing as   Previous research identified pricing
                    possibly the biggest generator of         as possibly the biggest generator of
                    channel conflict, but pricing was not     channel conflict, but pricing was
                    a conflict issue for Ducati.              not the biggest conflict issue for
                                                              SAS.
                                                              The removal of the commission,
                                                              i.e. the reward system, was the
                                                              most dangerous conflict issue for
                                                              SAS.




                                               89
______ CHAPTER 2 ______________________________________________________________________________

                                                              The reactions from travel agencies
                                                              when removing the commission
 Response of                                                  were dangerous for SAS.
 Channel Mem-       In the beginning, the reactions from
 bers               dealers were not judged as causing
                    real problems for Ducati. This
                    changed over time.
                    Customers were not disturbed much         Customers were not disturbed
 Response of
                    by the channel conflict between           much by the channel conflict be-
 Customers
                    Ducati and its resellers.                 tween SAS and the travel agencies.
                    The most important consequence of         The channel conflict that occurred
                    creating channel conflict caused by       when removing the commission on
 Effect on Brand
                    the online sales of motorcycles was its   sales to travel agencies probably had
                    positive impact on Ducati’s brand.        a negative effect on SAS’s brand.

Concerning revenue in conflict, i.e. whether two or more channels simultaneously
try to sell the same product to the same customers (Moriarty & Moran, 1990),
there are similarities, but also dissimilarities, between the cases. In SAS’s case, cus-
tomers purchasing through travel agencies and through SAS’s direct channels, in-
cluding the Internet, have very different profiles. Therefore, there is not much
revenue in conflict. Also, in Ducati’s case, since the motorcycles sold online were
not available through the dealer channels, there was no real revenue in conflict.
However, since the profile of customers purchasing motorcycles on the Internet
was similar to the profile of those purchasing them through dealers, the dealers felt
that they could have sold the motorcycles themselves had they just been given the
opportunity. In other words, in contrast to theory (cf. Moriarty & Moran, 1990),
even though the channels were not simultaneously serving the same customers
with the same product, the dealers perceived revenue in conflict, i.e. they per-
ceived that Ducati took sales away from them by its Internet sales. For online sales
of apparel and accessories, on the other hand, there was no revenue in conflict,
since customers purchasing these products online were located far away from deal-
ers and had no other access to these products.

There are several similarities between the cases, as well as dissimilarities, in the ma-
jor conflict issues involved in the channel conflict. Product availability, the reward sys-
tem, customer assignment and communication problems were mentioned as conflict issues
in both cases. In each case, product availability meant that some products were sold
only through the Internet channel. This differed from Webb (1997), where it
meant that it was difficult to match supply and demand for new products and, thus,
at times certain hot items were not available through all channels. The meaning of
the reward system as a conflict issue differed between the cases. Ducati discussed it in
terms of dealers’ dissatisfaction with the received commission on online sales, i.e.
sales made by another party (Ducati) through another channel (the Internet),
whereas for SAS it referred to travel agencies’ dissatisfaction with the removal of
their sales commission, i.e. sales they made themselves through their own channels.

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

For (Webb, 1997), the reward system has yet another meaning, i.e. that the objec-
tives of the different channels were at odds with what was best for the corporation.
Also customer assignment had different meanings for the two cases: for Ducati, it
meant that dealers wanted Ducati to force fan clubs to be attached to them, which
Ducati, for various reasons, declined to do; for SAS, as for Webb (1997), customer
assignment referred to the crossover between channels, i.e. customers purchasing
through both reseller channels and the company’s direct channels. Both Ducati and
SAS mentioned communication problems as a conflict issue; a conflict issue that was
not identified by Webb (1997). However, since the motorcycles were not available
through the dealer channels, and since prices offered online on apparel and acces-
sories were higher than those offered through dealers, pricing was not a conflict is-
sue for Ducati. For SAS, on the other hand, pricing was a conflict issue in the be-
ginning, since prices offered through SAS’s Internet channel were lower than
prices offered through other channels. Today, however, SAS does not experience
conflict on pricing, since the company offers lower online prices only on rare oc-
casions, and those prices are also available to travel agencies with an Internet chan-
nel. Therefore, contrary to theory (cf. Webb, 1997), pricing was not the biggest
conflict generator in either of the cases.

As for response of channel members, neither company regarded the reactions from re-
sellers due to the addition of the Internet channel as dangerous to the company.
However, in Ducati’s case this changed over time; after selling four motorcycles
online, management determined that the sales no longer generated the desired
publicity and decided not to weaken the dealer network any further. So, for the
time being, they are not selling motorcycles on the Internet. McDonald (1999)
states that the clearest sign of excessive channel conflict is a higher than normal
turnover of channel partners. Although no dealer ended its relationship with
Ducati, management saw the reactions of dealers as a problem. Apparel and acces-
sories are still sold online, but for these sales the response from dealers has not been
negative. In SAS’s case, management saw the negative response from travel agen-
cies as a response to the removal of commissions, and not so much as related to the
Internet. However, according to the newspapers, the conflict was very much re-
lated to the Internet channel, since travel agencies saw the removal of the commis-
sion as SAS trying to bypass them by making tickets sold through SAS’s Internet
channel cheaper than tickets they sold themselves. According to the newspapers,
travel agencies, in response to this conflict, even tried to make customers use air-
lines other than SAS. It seems that for Ducati the response from channel members
to Ducati’s direct sales on the Internet became a problem over time, whereas for
SAS, the corresponding response probably became dangerous as soon as the com-
mission on sales was removed.

Regarding the response of customers, neither Ducati nor SAS claimed that channel
conflict has disturbed customers very much. However, SAS received a lot of nega-


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tive press when it removed its sales commission to travel agencies, and this made
customers very aware of the conflict.
In fact, both companies received a lot of publicity when they added the Internet
channel. In Ducati’s case, the articles focused on the fact that Ducati was selling
high-priced motorcycles on the Internet and that the online sales were very suc-
cessful; the focus was not on the channel conflict. For SAS, on the contrary, the
articles focused on the conflict with travel agencies. The difference was that the
publicity affected Ducati’s brand in a positive way, whereas, for SAS, it probably
had a negative effect on its brand. How channel conflict affects a company’s brand,
as an approach to assess its seriousness, is not mentioned in the literature.

Approaches to Minimise Channel Conflict
The empirical findings on the cross-case analysis of the approaches companies used
to minimise channel conflict are summarised in Table 2.14. Findings that do not
match the frame of reference are marked in grey. Six different approaches that can
be used to minimise channel conflict were included in the frame of reference: insti-
tutionalised, pricing, product version, brand name, compensation and communication ap-
proaches.

Institutionalised approaches, such as relationship-building activities, etc., were dis-
cussed by both Ducati and SAS. Coughlan et al. (2001) discuss joint membership
in trade associations as one such approach, which can be compared to SAS meeting
with the travel agencies’ trade association as well as with travel agencies. The use of
reference resellers has previously been discussed in the channel management litera-
ture (e.g., Tsay & Agrawal, 2004), but then in the sense of compensating resellers.
The basic function, in which customers have to choose a reference reseller on
online sales, is, however, an institutionalised approach. Ducati utilized this ap-
proach. The other institutionalised approaches utilized by Ducati (i.e. regular pub-
lication to resellers of the company’s online direct sales, exposure of products sold
only through resellers in the company’s direct channel, and free transportation to
resellers of end customers’ purchases of motorcycles through the company’s direct
channel) have not previously been discussed in the channel management literature,
at least not in the context of minimising channel conflict. Although no similarities
among the institutionalised approaches can be found between the cases, it might be
inaccurate to say that all of the described approaches represent dissimilarities, be-
cause the question was open-ended and the respondents might have forgotten
some of the approaches in their answers.

When it comes to pricing, the companies in this study used different approaches.
Obviously, pricing was not an issue when Ducati sold motorcycles on the Internet,
since these were not available through other channels. Apparel and accessories,
though, are sold both on the Internet and through dealers. Although the prices of-


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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

fered online are the same as those offered by dealers, once shipping costs and duty
are included the total purchase prices offered online are actually higher. Ducati
does not experience any conflict with dealers about pricing, which is in accordance
with the frame of reference, in which higher online prices was identified as one con-
flict-reducing approach. When SAS started selling on the Internet, it offered lower
prices through its own Internet channel than through all other channels, which
caused channel conflict. SAS introduced a service fee on its sales to mitigate the
conflict that occurred when eliminating the commission to travel agencies. Service
fees were not discussed in the literature as a conflict-reducing approach. SAS also
changed its pricing approach by offering the same lower online prices to all Inter-
net channels, including those of travel agencies, but this approach also caused con-
flict. Today, SAS offers the same prices through all marketing channels, except for
certain campaigns that are also available to travel agencies that have Internet sales.
Since all travel agencies are offered the same base price that SAS offers, provided
they are selling through the Internet, SAS experiences no dangerous conflict with
its channel members about pricing. This pricing approach, in which online prices
usually are the same as in other marketing channels, but occasionally lower, could
not be found in the conflict-reducing literature.

Both companies used product version approaches, i.e. when an offered product or
product bundle is not available through all the company’s marketing channels. The
results of such approaches, however, differed between the companies. Although
product versions have been suggested as a way to reduce channel conflict (e.g.,
Ancarani, 2002), conflict still occurred when Ducati did not offer motorcycles
through all marketing channels. That is, when motorcycles were sold only online,
Ducati’s dealers got very upset, which is one reason why motorcycles have not
been sold online for the past two years. For legal and practical reasons, among oth-
ers, some of Ducati’s accessories and apparel are only available through dealers.
This product version approach obviously has not caused any conflict between
Ducati and its resellers, in accordance with the literature. SAS only offers e-tickets
through its Internet channel, so if customers want to purchase a paper ticket, they
have to turn to SAS’s telephone sales or a travel agency and pay an extra fee. SAS’s
product version approach, therefore, serves as a way to target different customer
profiles through different marketing channels, which has been suggested as another
conflict-reducing approach (e.g., Bucklin et al., 1997). Ducati’s product version
approach when selling motorcycles on the Internet, on the other hand, has not tar-
geted different customer segments, since customers purchasing motorcycles online
have almost the same profile as customers purchasing through dealers.

As for the use of brand name, the companies also were different; Ducati did not use
a different brand name in different marketing channels, whereas SAS introduced
the brand name Snowflake to compete in the low-cost carrier market. Although
the purpose of introducing Snowflake was not to reduce channel conflict, the lit-


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______ CHAPTER 2 ______________________________________________________________________________

erature suggests that the use of a different brand name in different marketing chan-
nels can reduce conflict (cf. Coughlan et al., 2001). For SAS, however, the intro-
duction of Snowflake led to ‘conflict’ with travel agencies, since Snowflake is only
sold through its own web site (www.flysnowflake.com) and not through the GDS
reservation system, which travel agencies normally use in making reservations. Gu-
lati and Garino (2000) claim that the decision of whether to separate a brand in dif-
ferent marketing channels is to a large extent a choice between flexibility and trust.
According to management, Snowflake became a reputable brand in very short
time, so, contrary to theory, it seems that using a separate brand name in different
marketing channels does not always create problems of trust.
Table 2.14 Cross-Case Analysis of Conflict Reducing Approaches
 Conceptu-       Conflict Reducing Approaches –               Conflict Reducing Approaches –
 alisation –     Ducati                                       SAS
 Conflict
 Reducing
 Approaches

                                                              Regular meetings are held with travel
                                                              agencies and their trade association.

                 Online customers have to choose a ref-
                 erence dealer, within the country of
 Institutiona-   product delivery.
 lised           Results from Ducati’s online sales are
 Approaches      published to dealers once a month.
                 Free transportation of used motorcycles
                 is provided from Ducati’s outlet to
                 dealers, if a customer wishes.
                 New motorcycles are shown, but not
                 sold, at Ducati’s outlet. Prospective cus-
                 tomers are referred to dealers.
                 There is no conflict about pricing, since
                 the total purchase price online for ap-
                 parel and accessories is higher than that
                 offered by dealers.
                                                              When SAS offered lower prices
 Pricing                                                      through its own Internet channel
 Approaches                                                   than prices offered through all other
                                                              channels, channel conflict occurred.
                                                              SAS introduced a service fee on its
                                                              sales when the commission to travel
                                                              agencies was removed.
                                                              Today, SAS usually offers identical
                                                              prices in all marketing channels and,
                                                              sometimes, lower online prices
                                                              through all Internet channels.




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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

              Accessories and apparel that are only
              available through the dealer channel
              have not caused channel conflict be-
              tween Ducati and its resellers.
 Product
              Ducati’s product version approach of
 Version
              selling motorcycles through only the
 Approaches
              Internet caused channel conflict.
              Ducati’s product version approach re-      SAS’ product version approach does
              garding online sales of motorcycles did    target different customers through
              not target different customers             different channels.
              through different channels.
              Ducati does not use different brand
              names in different channels.
                                                         The brand name Snowflake was in-
                                                         troduced to compete with low-cost
 Brand Name                                              carriers, on a web site detached from
 Approaches                                              the GDS reservation system; this
                                                         caused ‘conflict’ with travel agencies.
                                                         In a short period of time, Snowflake
                                                         became a well-known and reputable
                                                         brand.
              Reduced commission to dealers for re-      No compensation to travel agencies
              ferring motorcycle sold online to end      for sales made through SAS’s direct
 Compensa-    customer, i.e. reduced commission          channels, i.e. no commission, be-
 tion         for reduced service involvement.           cause of no service involvement.
 Approaches   Reduced commission to reference deal-
              ers on online sales of accessories and
              apparel without their actual involve-
              ment in those sales.
              Ducati provides information about
              online customers to reference dealers.
              An extranet reduces communication          An extranet reduces communication
              conflicts with resellers.                  conflicts with resellers.
              A base text, describing the positioning
              of a product, is distributed through all
              channels to increase consistency of
              communication, thereby reducing
              channel conflict.
 Communi-     To reduce communication conflicts,
 cation       the Internet business was integrated
 Approaches   with the parent company.
              The web site is designed to minimise
              conflict between different customer
              segments.
                                                         In advertising, reference is given to
                                                         SAS directly and to travel agencies.




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______ CHAPTER 2 ______________________________________________________________________________

Concerning compensation, Ducati and SAS used totally different approaches.
Ducati’s dealers received a commission for Ducati’s online sales, whereas SAS did
not compensate travel agencies for their online sales. The big difference between
the companies is that Ducati’s dealers actually perform the service of referring mo-
torcycles to customers; they are compensated for their services, whereas travel
agencies are not involved at all in SAS’s direct sales. Since the service of referring
motorcycles sold online to customers does not involve all the traditional services
expected by dealers (marketing, inventory, etc.) dealers receive a lower than usual
commission on these sales. As Coughlan et al. (2001) point out, when channel
members no longer perform all the channel functions, they can no longer expect
to receive a full commission. However, the compensation approach used by Ducati
for the online sale of accessories and apparel contradicts this theory, since, although
dealers are not involved in these sales at all, they receive a reduced commission on
them. But compensation does not only come in the form of money; dealers also
receive information about the online customers who choose them as reference
dealers, which offers them the opportunity to contact these customers.

Both Ducati and SAS utilize an extranet to improve their communication with resel-
lers, which both companies referred to as reducing channel conflict. Ducati also
discussed other communication approaches, namely, the integration of ducati.com
with Ducati and the use of a base text about the positioning of a product, to make
sure that the communicated message is the same across channels. Furthermore, to
reduce conflict between customer segments, Ducati’s web site is designed with the
hope that visitors will appreciate the whole world of Ducati, regardless of their en-
try point to the brand (the engine, the design, racing, etc.). SAS also pointed out
that in its advertising it always tells its customers that they can make a reservation
by contacting either SAS directly or a travel agency. SAS does this in order to
communicate to customers and travel agencies that it does not matter where the
customers purchase their tickets; all SAS cares about is that they travel with SAS.
This method seems to be in agreement with what Heide and John (1992) call soli-
darity, which refers to channel members’ belief that the channel relationship should
bring mutual benefits.

2.6 Conclusions


T
2.6.1
         his section provides an overall conclusion for the findings of this study.
         The findings and conclusions will be discussed first, followed by manage-
         rial implications, and, finally, suggestions for future research.

         Findings and Conclusions
The focus of this research has been channel conflict when adding the Internet. Al-
though some channel conflict was described by the companies, it must be noted
that both Ducati and SAS emphasized that they have a very good working rela-


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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

tionship with their resellers, although on rare occurrence they have encountered
problems. With that said, it is time to return to the purpose of this thesis, namely:

  To explore and describe managers’ perspectives on conflict in multiple marketing channels,
                               with a focus on the Internet

Based on the literature review, three research questions were posed:

1) How can the causes of channel conflict in multiple marketing channels, including the
   Internet, be described?
2) How can the seriousness of channel conflict in multiple marketing channels, including the
   Internet, be described?
3) How can the approaches that management utilizes in order to minimise channel conflict
   in multiple marketing channels, including the Internet, be described?

The findings and conclusions based on these research questions will be discussed in
this section, which is divided into three parts: causes of channel conflict, assessing the se-
riousness of channel conflict and approaches to minimise channel conflict.

Causes of Channel Conflict
The findings from this study confirm that channel conflict will occur when com-
panies add the Internet marketing channel to existing marketing channels. The
study, however, has led to the identification of both similarities and dissimilarities
between the companies included in this study with respect to the causes of channel
conflict. In both cases, goal incompatibility, domain dissensus and inadequate communica-
tion were described as the primary causes of conflict. No other causes of conflict
were discussed by the respondents.

In agreement with theory, conflicts caused by goal incompatibility occurred, since the
business goals of both the manufacturer and the service provider were different
from those of their resellers.

Although it has been suggested that conflict caused by domain dissensus will increase
with the adding of the Internet channel (cf. Alba et al., 1997), both companies
claimed that such conflicts had not increased. This does not mean, though, that
conflicts caused by domain dissensus related to the addition of the Internet did not
occur. In the case of Ducati, domain-related conflicts occurred because several
functions or tasks usually provided by the reseller were taken over by the manufac-
turer. So, even though resellers were compensated for the manufacturer’s online
sales, channel conflict occurred, contrary to theory (cf. Coughlan et al., 2001),
since resellers felt bypassed in giving service to customers. In other words, by sell-
ing products directly to end customers on the Internet, the manufacturer took over


                                             97
______ CHAPTER 2 ______________________________________________________________________________

functions usually provided by resellers, which interfered with the resellers’ relation-
ships with customers. Another reason for domain- related conflicts in this case is
that the profile of customers purchasing online was so similar to that of customers
purchasing through resellers. This led to conflicts about who owns the customers,
i.e. population to be served. However, although the profiles of customers purchasing
online and through resellers were different, discussions about who owns the cus-
tomers also occurred in this case. In fact, although the customer profiles were dif-
ferent in different channels, domain dissensus was judged to be among the major
causes of conflict.

The manufacturer (Ducati) judged inadequate communication to be the major cause
of channel conflict. When communication was not clear, consistent, homogene-
ous, timely, or too redundant, communication-related conflicts occurred between
the manufacturer and its resellers, as well as among various divisions within the
company. The service provider (SAS) also judged communication conflicts to be
one of the major causes of channel conflict; lack of knowledge in the channel rela-
tionship leads to insecurity and, hence, conflict.

Hence, quite contrary to Webb’s (1997) findings, although inadequate communi-
cation, as well as the part of domain that is related to lack of coordination, are im-
portant as causes of channel conflict, this study indicates that the other parts in-
cluded in the concept of domains, as well as incompatible goals, are also important
causes of conflict when multiple marketing channels are utilized. To be precise, no
matter how much the two companies included in this study would have commu-
nicated or coordinated their operations with their resellers, occasionally conflict
still would have occurred: (1) since some of the business goals of the manufacturer
or service provider are different from those of their resellers, and (2) since, when
the manufacturer started selling directly to end customers, domain conflicts were
caused because some relationship-building activities were taken over from the re-
sellers.

Assessing the Seriousness of Channel Conflict
Neither of the companies included in this study used any of the structured methods
suggested in the literature to assess the seriousness of channel conflict. Instead,
meetings with channel partners, and in one case with the resellers’ trade associa-
tion, provided the companies with a good understanding of when conflicts with
channel members exceeded appropriate levels. Even so, the answers that were
given to the questions included in the frame of reference helped achieve an under-
standing of the conflict that occurred between the companies and their channel
members.

It is apparent that the reseller channel is very important for both companies in-
cluded in this research. For example, the manufacturer cannot sell its motorcycles

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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

without the assistance of resellers, and most of the service provider’s sales go
through resellers. The manufacturer still decided to sell motorcycles on the Inter-
net, since it wanted to create excitement for presumptive customers and create
publicity to build the brand. It therefore took several measures before launching its
Internet sales to make sure that the resellers were involved in the sales process. The
actions of the service provider, on the contrary, were judged by its resellers as an
attempt to bypass them by means of direct sales through the Internet channel, so-
called disintermediation. As a result, some resellers even tried to make customers
purchase offerings from other service providers. Furthermore, the media wrote a
great deal about this conflict, so customers became very aware of it. The service
provider judged the conflict to be dysfunctional and therefore made changes in its
Internet sales policy to reduce the conflict, but only after it occurred.

Although the service provider’s customers decide whether to purchase through the
company’s direct channels or through the resellers’ channels, the different channels,
for the most part, do not serve the same customers, as customers purchasing
through the different channels have rather different profiles. The manufacturer sells
apparel and accessories through both its web site, as well as through resellers. Also
in this case, the profiles of customers purchasing through the different channels are
different. However, the customers who bought motorcycles online had pretty
much the same customer profile as those who purchase them through resellers.
Therefore, as the customer profiles are nearly the same, and even though resellers
do not sell the same motorcycle models that were sold through the manufacturer’s
web site, the resellers thought that the channels were serving the same customers.
In other words, somewhat contradicting theory (cf. Moriarty & Moran, 1990), re-
sellers felt that revenue was in conflict because the profiles of the customers are the
same, even though the manufacturer and reseller channels did not provide the
same products to the same customers simultaneously; the result was conflict.

The manufacturer received a lot of publicity, but the focus of this publicity was not
the channel conflict. Instead, as intended, the focus was on the product and the
amazing fact that a manufacturer was selling high-priced motorcycles online. So,
although the online sales created conflict with the resellers, this conflict was judged
to be less important than promoting the brand and building the excitement that
the sales created. In other words, the publicity had a positive effect on the manu-
facturer’s brand, although it probably had a negative effect on that of the service
provider. This issue, i.e. how the channel conflict affects a company’s brand, is not
discussed in the literature.

However, when Ducati had sold some motorcycle models online the novelty dis-
appeared, and the manufacturer did not receive much more publicity. At that point
it was judged more important to manage the relations with resellers. That is, when
the online sales no longer created excitement, it seems that management judged


                                          99
______ CHAPTER 2 ______________________________________________________________________________

the channel conflict to be dysfunctional to the company. Therefore, motorcycles
have not been sold online for the past two years. However, the online sales of ap-
parel and accessories continue, since these make it possible for the company to
reach customers who are located far from resellers and they have not created chan-
nel conflict for the company. These sales also allow the manufacturer to keep con-
trol of the Internet channel, because, as management states, if it does not manage
the Internet channel, its resellers will.

Previous research on a multiple marketing channel system that includes the Inter-
net identified several conflict issues: pricing, product availability, customer assignment,
promotion, resource allocation and the reward system (Webb, 1997). Resource allocation
was not mentioned as a conflict issue in the present study. However, since the in-
terviews were open, the companies may not have mentioned resource allocation;
however, it still might be a conflict issue. A conflict issue that was not identified in
previous research but was mentioned by both companies is communication problems.
The other issues mentioned by at least one of the companies are product availability,
customer assignment, reward system and pricing. These conflict issues all relate to the
previously identified causes of conflict, i.e. goal incompatibility, domain dissensus and
inadequate communication. The service providers’ pricing and the companies’ reward
systems relate to goal incompatibility, and product availability and customer as-
signment relate to domain dissensus. Communication problems obviously relate to
inadequate communication. Since the conflict issues described by the respondents
can be related to all three conflict causes included in the frame of reference, this re-
search does not support the suggestion made by Webb (1997), i.e. that goal in-
compatibility and domain similarity rather than being causes of conflict represent
types of conflict issues. Instead, this research seems to support the conclusion of
Ong et al. (1990) that conflict issues are symptoms of the causes of conflict.

Moreover, neither of the companies included in this research thought that pricing
was the biggest conflict issue. In fact, the manufacturer stated that it had no chan-
nel conflict about pricing at all. Although the service provider had experienced
some channel conflict about pricing when introducing the Internet channel, man-
agement stated that the company no longer had any pricing-based channel conflict,
since its approach to pricing had changed. Management instead stated that the larg-
est conflict issue was the removal of compensation on sales to its resellers, which,
due to the addition of the Internet channel, some of the company’s resellers saw as
a move towards disintermediation. In other words, this research does not support
previous research, which suggests that pricing is the single issue over which most of
the conflict is generated (cf. Webb, 1997). On the contrary, this study indicates
that different companies experience different conflict issues when using multiple
marketing channels, including the Internet, and also that the conflict issues change
over time.



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__________________________________________ STUDY I: PRODUCERS’ PERSPECTIVE ______

The service provider did not find anything positive about channel conflict, and
therefore stated that the goal is to avoid conflict with its channel partners. The
manufacturer, on the other hand, stated that it tries to create conflict, do things
that are radical, exciting and controversial, to build the company’s brand in order
to justify the premium price of its products. Therefore, even though management
knew that it would lead to conflict with its resellers, the manufacturer decided to
sell high-priced motorcycles online. However, since the resellers are so crucial for
the company, management took several measures beforehand to reduce the con-
flict as much as possible.

Approaches to Minimise Channel Conflict
Both the manufacturer and the service provider utilized several approaches to
minimise channel conflict. The service provider built its relations with resellers
through regular meetings with them, as well as with their trade association. This
institutionalised conflict-reducing approach is discussed in the literature. The manu-
facturer, on the other hand, utilized institutional approaches which have not been
described, at least in that sense, in the literature. That is, the manufacturer’s online
customers had to choose a reference dealer within the country of product destina-
tion (who later received compensation on these sales), and results from the com-
pany’s online sales were published to resellers monthly.

In accordance with the frame of reference, the manufacturer experienced no con-
flict about pricing, since, although the base prices were the same for accessories and
apparel regardless of whether they were offered through resellers or online, once
shipping costs and duty were included the total purchase price was higher online.
The service provider previously experienced conflict about pricing, since prices of-
fered through the company’s web site were lower than prices offered through
other channels. However, the company had introduced a service fee on its direct
sales, and it also had changed its pricing approach. Now the company offers the
same prices through all Internet channels. Sometimes Internet prices are lower than
prices offered through traditional channels, but then the lower prices are offered
also through resellers’ Internet channels. Thereby, the company experiences few
pricing conflicts. This pricing approach, however, is not discussed in the literature.

Both the manufacturer and the service provider used the product version approach,
i.e. some of the companies’ offerings were not available through all of its marketing
channels. Ancarani (2002) claims that companies can avoid channel conflict by re-
sorting to e-commerce only for products not available in traditional channels, re-
ferring to Procter & Gamble. Nevertheless, Ancarani (2002) mentions nothing
about the kind of products Procter & Gamble offers solely through its Internet
channel. In the present research, however, even though the manufacturer decided
to sell online only those motorcycle models that were not available through deal-
ers, channel conflict still occurred. The dealers thought that they could sell these

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motorcycles had they been allowed to, especially since this product version ap-
proach did not target different segments, as the customer profiles of online and off-
line customers were practically the same. The service provider’s product version
approach, on the other hand, targeted different customer segments, as suggested in
the literature (cf. Bucklin et al., 1997). The results of this study therefore indicate
that when producers sell to end customers highly desirable products directly that
resellers could have sold just as well, channel conflict will occur, especially if the
product version effort does not target different customer segments.

The use of different brand names in different channels has also been suggested as a
way to reduce channel conflict. The service provider utilized this approach, al-
though its primary objective was to compete with low-cost carriers and not to re-
duce channel conflict. Even if some resellers complained about not having easy ac-
cess to the low-cost brand’s offerings, no real conflict occurred due to this ap-
proach. It has been argued that the decision to separate brands in different market-
ing channels is a choice between flexibility and trust (Gulati & Garino, 2000).
However, when the service provider introduced its low-cost brand, it became well
known and reputable in a short period of time. Hence, contrary to theory, it seems
that using separate brands in different marketing channels does not always raise
trust issues.

Compensation of resellers for a company’s direct Internet sales has also been sug-
gested as an approach to reduce channel conflict (cf. Coughlan et al., 2001). In
agreement with theory, the service provider did not compensate its resellers, since
they were not involved in its online sales. The manufacturer compensated its resel-
lers with a lower than usual commission, since the resellers no longer were per-
forming all the traditional services, such as stock holding or marketing; this also is
in agreement with theory. However, contrary to theory, the manufacturer also
compensated resellers for online sales of accessories and apparel, even though the
resellers were not involved at all in these sales. The manufacturer also ‘compen-
sated’ its resellers with information about the online customers who chose them as
a reference reseller.

Both the manufacturer and the service provider used an extranet to improve com-
munication with resellers; both companies cited this as reducing communication
conflict. This means that the unique characteristics of the Internet can be used to
reduce channel conflict. The manufacturer’s Internet business was integrated with
the parent company to make it easier to communicate the same message through
all marketing channels. The manufacturer distributed a base text about the posi-
tioning of a product throughout all its marketing channels, to make sure that the
communicated message would be the same across channels. Furthermore, the
manufacturer’s web site was designed to minimise conflict among different cus-



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tomer segments. Finally, in its advertising, the service provider refers to both the
company’s direct channels and to resellers.

2.6.2    Theoretical Contributions
The theoretical contributions of this study are based on only two case studies.
However, as Yin (2003) claims, even a single case can confirm, challenge, or ex-
tend theory.

Even though channel conflict occurred in both companies when they added the
Internet channel, managers did not think that the Internet per se contributed to
more conflict with its channel members.

Although goal incompatibility, domain dissensus and differing perceptions of reality
are presently accepted as the major causes of channel conflict (cf. Coughlan et al.,
2001), the findings from this study confirm the assumption made in the frame of
reference, i.e. that differing perceptions of reality probably should be replaced with in-
adequate communication as one of the primary causes of conflict, since differing per-
ceptions of reality seem to be the result of inadequate communication. In fact, in-
adequate communication was stated to be the major cause of channel conflict by
one of the companies, and one of two major causes of conflict by the other, thus
further strengthening this assumption. In addition, the channel conflict issues in-
volved in this research could all be traced back to these three causes of conflict.

When assessing whether channel conflict is functional or dysfunctional, it seems
that one important aspect to consider is its impact on a company’s brand. One of
the companies viewed channel conflict as having only negative consequences, and
it seems that this company’s brand had been negatively affected by the conflict
with its resellers. On the contrary, the company that had experienced positive ef-
fects on its brand, i.e. positive publicity, did not consider the channel conflict that
occurred when adding the Internet a problem for the company.

This research also found that the Internet can be used to reduce channel conflict.
Both companies referred to the extranet as a way to improve communication with
resellers, which in turn was claimed to reduce communication-related conflict.

Furthermore, the pricing approach presently utilized by the service provider is dif-
ferent from the ones identified in the literature review. Although this approach re-
sembles of the identical prices in all marketing channel approach, they are not
really the same, since the prices offered online sometimes are lower than prices of-
fered through traditional agents, but then both through the service provider’s and
resellers’ Internet channels. Therefore, it seems more correct to label this pricing
approach as online specific pricing. In addition, the service provider added a service
fee on its direct sales. This also contributed to reducing the conflict with its resel-

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lers, since the fee made it easier for resellers to charge for their services. Hence,
based on the literature review (see Table 2.4, p. 35) and the results of this study,
the following table of conflict-reducing pricing approaches when adding the Inter-
net, was compiled (see Table 2.15).
Table 2.15 Conflict-Reducing Pricing Approaches When Adding the Internet
 Pricing Approach              Description
                                  Higher prices on the Internet than in other channels
 Higher Online Prices             Same basic price in all channels, but higher price on the
                                  Internet when handling and shipping fees are included
 Identical Prices in All
                                   Same price in all available marketing channels
 Marketing Channels
                                   Same online price through both the producer’s and the resel-
 Online Specific Pricing           ler’s Internet channels, but not always the same as in tradi-
                                   tional channels
                                   Selling excess capacity through the Internet via auction
 Auction Pricing
                                       online price uncertainty

2.6.3      Managerial Implications
Not all channel conflict can be avoided when producers add the Internet channel
to existing marketing channels. Some of the business goals of a producer and a re-
seller will always be different, which might lead to conflict, and as soon as produc-
ers start to sell directly to end customers, resellers will fear disintermediation. In
addition, not all channel conflict should be avoided. As Stern and Heskett (1969)
maintain, without conflict, systems can become passive, non-innovative and, even-
tually, non-viable. If Ducati had decided not to sell motorcycles online in order to
avoid conflict with its resellers, the company would have missed the opportunity to
get as much brand building publicity as it did.

However, the way a company handles the conflict when adding the Internet chan-
nel seems to be crucial for the outcome of the conflict. The findings of this study
indicate that it is important to handle the channel conflict proactively, i.e. to im-
plement proper conflict-reducing measures before adding the Internet marketing
channel so as, among other things, to reduce resellers’ concerns about disinterme-
diation. One way for a company to minimise conflict with its resellers could be to
involve them as much as possible in online sales. In Ducati’s case, for instance, re-
sellers are even compensated for Ducati’s online sales of apparel and accessories,
despite the fact that resellers are not involved in these sales at all.

Furthermore, both companies cited inadequate communication as the major cause
(or one of the major causes) of conflict. Therefore, managers are advised to take
measures to ensure that communication with its channel partners is working prop-
erly. The use of a well-designed extranet could be a valuable tool in achieving this
objective.


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Ducati, as, for instance, Harley-Davidson, is a motorcycle brand that by itself is
very niched. Therefore, by offering a motorcycle model only through the Internet,
the company did not target different customer segments, since the profiles of
online and offline customers were more or less the same; this, in turn, led to chan-
nel conflict. However, it would probably have worked had Ducati offered the mo-
torcycles sold online to dealers as well; then the competition would be level. The
same pricing approach could be used, as that used when selling accessories and ap-
parel online, i.e. the MSRP, plus the delivery cost, the duty, and the commission
to reference dealers. Since online prices with this approach would be higher, it is
likely that only customers located very far from a dealer would purchase motorcy-
cles online. They still would have to pick them up at a reference dealer, since, ac-
cording to Ducati, it is not possible to sell motorcycles without the assistance of a
dealer. But the customer at least would not have to visit a dealer just to initiate the
purchase. By using this approach, Ducati would probably not experience much
conflict with dealers, since it would be clear to them that Ducati is attempting only
to expand its market, not to bypass them. Another important consequence of this
approach is that Ducati would be able to prevent dealers from charging too much
over the MSRP. Although few motorcycles would probably be sold through the
Internet, by using this approach the company would avoid reverse channel conflict
(i.e. channel conflict due to resellers’ Internet sales) because, as the company stated,
there is no way to avoid Internet management.

2.6.4      Suggestions for Future Research
The findings of this research indicate that the way companies handle channel con-
flict is crucial for the outcome of the conflict. Future research should therefore
provide managers with further insights on how to manage conflict in multiple
marketing channels, including the Internet.

An obvious extension of this research would be to investigate resellers’ perspectives
on conflict in multiple marketing channels with a focus on the Internet. Another
apparent extension would be to conduct a survey of both producers’ and resellers’
perspectives on such channel conflict, in order to evaluate the findings of this re-
search.

In this study, inadequate communication was pointed out as a major cause of
channel conflict. Future research, therefore, needs to address communication man-
agement in multiple marketing channels, including the Internet. Since the extranet
was pointed out as a valuable tool in reducing channel conflict, future research
should provide managers with guidance on how an extranet can be designed in or-
der to best serve its purpose as a conflict reducer. Furthermore, quantitative re-
search is needed to evaluate whether one of the generally accepted causes of con-
flict—differing perceptions of reality—should be replaced with inadequate com-
munication, as the findings of this study indicate.

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Moreover, is channel conflict really the most serious concern for companies when
adding the Internet? The results from Forrester’s research, in which 66 percent of
the respondents indicated that channel conflict was the biggest issue facing manu-
facturers selling online, were based on a survey of only fifty manufacturers (cf. Gil-
bert & Bacheldor, 2000). Neither of the companies included in the present re-
search, however, thought that channel conflict was the most serious concern when
they added the Internet. Furthermore, management at both companies reported
that it had not experienced more channel conflict than before that channel was
added. Future research, therefore, is needed to address these issues.




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3 STUDY II: RESELLERS’ PERSPECTIVE
The aim of this chapter is to bridge the two studies that together form the basis for this doc-
toral thesis, i.e. the producer study that was presented in the previous chapter, and the reseller
study that will be presented in the forthcoming chapters. First, the research purpose of the the-
sis will be reviewed, and the research questions of the reseller study will be presented. There-
after, some delimitations of the study will be discussed.

3.1 Research Purpose and Research Questions


I   n this second study, resellers’ perspectives on channel conflict will be studied.
    Although some of the research questions will be different from those in Study
    I, the research purpose remains the same. In the first chapter, the research pur-
pose of this thesis was stated as follows:

  To explore and describe managers’ perspectives on conflict in multiple marketing channels,
                               with a focus on the Internet

As stated in the second chapter, Rosenberg and Stern (1971) have developed a
model that emphasizes the major aspects of the conflict process (see Figure 3.1).
This model will serve as starting point also for the second study.



      Causes of                          Measurable level of                    Outcomes
      conflict                                conflict                          (behavioral
                                                                                and financial)
                    Structural and at-                         Behavioral
                    titudinal factors                          reaction
                                                               (conflict
                                                               resolution
                                                               strategies)



Figure 3.1 The Intrachannel Conflict Process (Rosenberg & Stern, 1971, p. 438)
The causes of channel conflict, the level of channel conflict, and the outcomes of
the channel relationship are the topics to be studied. The justification for this
choice is provided below with respect to each research question.

3.1.1     Research Question One
Although goal conflict, domain conflict and differing perceptions of reality are
presently accepted as the major causes of channel conflict (e.g., Stern & El-Ansary,
1988), the findings from Study I indicate that differing perceptions of reality probably

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should be replaced by inadequate communication, since differing perceptions of reality
seem to be the result of inadequate communication. Hence, the first research ques-
tion is stated as follows:

    How can the causes of channel conflict in multiple marketing channels, including the
                                  Internet, be described?

3.1.2      Research Question Two
The second research question addresses the core of this thesis, namely channel con-
flict. In Study I, producers stated that although channel conflict had occurred after
the addition of the Internet channel, this additional channel conflict was not caused
by the Internet per se. Accordingly, it seems interesting to investigate whether re-
sellers think the same. Moreover, in order to investigate the impact of channel
conflict, its level must be measured (e.g., Brown & Day, 1981). Hence, the second
research question is formulated as follows:

    How can the level of channel conflict in multiple marketing channels, including the
                                  Internet, be described?

3.1.3     Research Question Three
As early as the 1960s, Pondy (1967) concluded that conflict is of concern to an or-
ganisation only when it has implications for outcomes. Accordingly, the third re-
search question is formulated as follows:

    How can the relationship between the level of channel conflict in multiple marketing
        channels, including the Internet, and the channel outcomes be described?


3.2 Delimitations


I   n Study I, producers’ perspectives were studied. In this second study, resellers
    of the two investigated companies (Ducati and SAS) will be researched. Al-
    though this approach will provide a fuller picture of the conflict within these
marketing channels, it will also restrict the study in some aspects. Since the study
will be limited to these two companies, the number of respondents will also be
somewhat limited. Therefore, it was decided to follow Cohen’s (1990) advice and
include only a few constructs in the research, i.e. to apply the principle of “less is
more”. Consequently, a number of interesting constructs will be omitted from this
study (see below).




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3.2.1     Commitment
Some researchers view commitment as an essential part of successful long-term re-
lationships (e.g., Gundlach, Achrol & Mentzer, 1995). Although commitment has
been found to be an antecedent of performance (cf. Skarmeas, Katsikeas &
Schlegelmilch, 2002), the most common view among researchers is that commit-
ment is the ultimate outcome of the channel relationship (cf. Geyskens, Steenkamp
& Kumar, 1999). Hence, it would have been interesting to study commitment as
the final outcome of the channel relationship. Nevertheless, because the intention
was to limit the number of constructs included in this research, and since satisfac-
tion is regarded as an antecedent of commitment (e.g., Hunt & Nevin, 1974), it
was judged more important to include satisfaction and retain leave commitment for
future research.

3.2.2      The Extranet
In Study I, it was found that the Internet can be used to reduce channel conflict.
Both companies referred to the extranet as a way to improve communication with
resellers and thus reduce communication conflict. However, since the non-IATA
travel agencies do not have access to SAS’ extranet (see Chapter 5.4.3, p. 136, for a
further discussion), and since this was discovered only after the survey was distrib-
uted (thereby making it almost impossible to distinguish between those who have
access to the extranet and those who do not) the impact of the extranet could not
be included in this study.

3.2.3      Functionality of Conflict and Impact on Brand
Anderson and Narus (1990) included functionality of conflict in their study of the
working relationship between distributors and manufacturers. Functionality of con-
flict was described as follows: “in the minds of a firm’s managers, to what extent
have recent disagreements with a partner firm been productively resolved?”
(Anderson & Narus, 1990, p. 45) They developed two questionnaires to be as
similar as possible, one aimed at distributors and the other aimed at manufacturers.
They hypothesized a negative causal relationship between the functionality of con-
flict and the level of conflict, since they believed that companies with the ability to
resolve conflicts should have fewer recurring conflicts. However, they failed to
find statistical support for their hypothesis in either study. It must be noted,
though, that four items for each construct were included in their original ques-
tionnaire, but after scale purification very few items remained. That is, only one
item that measured functionality of conflict remained in the distributor study, and
all items measuring this construct were dropped in the manufacturer study. More-
over, all items used to measure conflict in the distributor study were dropped, and
in the manufacturer study only one such item was retained. Other authors have
suggested the opposite relationship, arguing that some conflict probably is func-
tional but that there is probably a threshold level where conflict becomes dysfunc-
tional (Boulding, 1965; Stern, Sternthal & Craig, 1973b). In Study I of this thesis,

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it was indicated that one important aspect to consider when assessing whether
channel conflict is functional or dysfunctional is its impact on a company’s brand.
One of the companies viewed channel conflict as having only negative conse-
quences, and it seems that this company’s brand was negatively affected by the
conflict with its resellers. On the contrary, the company that had experienced posi-
tive effects on its brand, i.e. positive publicity, did not consider the channel con-
flict that occurred when adding the Internet to be a problem for the company.
Nevertheless, although it would be interesting to investigate the functionality of
conflict, other concepts were judged to be more critical for this study.

3.2.4      Power and Interdependence
What Etgar (1979) refers to as drive for autonomy (see Chapter 4.1), is referred to by
other authors as power (e.g., Hunt & Nevin, 1974). Power can be described as the
ability to get someone to do something he/she would not have done otherwise
(Gaski, 1984). Power in channel relationships received considerable attention dur-
ing the 1970s. Not all those who recognise a connection between power and con-
flict share the same perspective. Some researchers claim that conflicts arise in a
channel because superiors attempt to control the behaviour of subordinates, who
resist such control, whereas other researchers view power as a result of, or a re-
sponse to, conflict. But most researchers acknowledge that there is a causal rela-
tionship between power and conflict, and that it can, and does, proceed in both di-
rections (ibid.). Even so, unless one party is dependent on the other party, the abil-
ity to influence the other party is limited (Frazier, Gill & Kale, 1989). As the de-
pendence of each party upon the other party is the antecedent of power (e.g.,
Kumar, 2005), it would seem more interesting to study interdependence, because it
refers to the ability to replace both resellers and producers in the reseller’s trade
area (Kumar, Scheer & Steenkamp, 1995).

That is, in Chapter 1.2.1 a marketing channel was defined as a system involved
with the task of, either directly or indirectly, making anything of value available for
use or consumption. It was also concluded that if a marketing channel cannot de-
liver value on its own, it can do so indirectly by using another marketing channel.
Hence, unless direct marketing channels are used, the actual delivery (i.e. the
physical acquisition of the product), at least, will be handled by another marketing
channel. Accordingly, in most cases, marketing channels are combinations of inter-
dependent organisations that make a product available to the end user. Conse-
quently, perceived interdependence is a crucial concept in channel research
(Kumar et al., 1995).

Kumar et al. (1995) found that relationships with high interdependency, i.e. high
symmetric dependence, displayed lower levels of conflict than asymmetrical rela-
tionships. Furthermore, Frazier and Rody (1991) found that when the interde-
pendence in a channel relationship is asymmetric, the more dependent party will

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__________________________________________ STUDY II: RESELLERS’ PERSPECTIVE ______

attempt to avoid conflict. A possible explanation of this could be that the more de-
pendent party wishes to remain in a relationship which is as strong as possible, be-
cause of the benefits it receives from the exchange (ibid.). Moreover, Frazier et al.
(1989) argue that when resellers are in a highly dependent state, producers can
pressure them without risking too much. Although this probably will lead to
higher levels of perceived conflict, the reseller will most likely choose to remain in
the relationship. So, even when conflict is high, and the reseller is relatively dissat-
isfied with it, the reseller is unlikely to leave the relationship, because of its de-
pendence on the producer (ibid.). This would suggest that although highly de-
pendent resellers perceive conflict more frequently than resellers who are not so
dependent on the producer, they former are less likely to give voice to such con-
flict. Accordingly, it would have been interesting to include interdependence in
the study.

However, interdependence is a formative construct (cf. Kumar et al., 1995), and
the structural equation modelling software used in this study (AMOS) is not suit-
able for formative analyses (cf. Chin, 1998). Because of the researcher’s non-
existing knowledge on how to use other suitable software, such as the compo-
nents-based approach known as partial least square (Chin, 1998), and because time
did not allow the researcher to learn how to use such software, it was decided to
retain interdependence for future research.




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______ CHAPTER 4 ______________________________________________________________


4 DEVELOPING A RESEARCH MODEL
The purpose of this chapter, based on the previously presented research purpose and an ex-
tended literature review, is to develop relevant hypotheses and build an appropriate research
model for the study of channel conflict in multiple marketing channels, including the Internet.
The chapter will start with a discussion of the causes of channel conflict, followed by a discus-
sion of channel conflict itself, and then the outcomes. The chapter ends with a graphical pres-
entation of the research model, as well as a summary of the research hypotheses.

In order determine how channel conflict can be reduced or resolved, an analysis of
its causes has to be made (Stern & Heskett, 1969). Therefore, the first part of the
conceptual model focuses on the causes of channel conflict in multiple marketing
channels, including the Internet (see Figure 4.1, p. 126).

4.1 Causes of Channel Conflict


C         auses are the underlying bases of conflict that the parties may not even be
          aware of (Ong et al., 1990). The generally accepted causes of channel con-
          flict are goal incompatibility, domain dissensus and differing perceptions of reality
(e.g., Stern & El-Ansary, 1988). However, the selection of these causes is based on
a conceptual paper (cf. Stern & Heskett, 1969), and only two empirical studies
have been found that researched all three causes (cf. Rosenberg & Stern, 1971;
Arndt & Ogaard, 1986). In addition, Rosenberg and Stern (1971) were not able to
attain statistical significance for all conflict causes for each of their researched chan-
nel relations.

Furthermore, although several scholars have described the causes of channel con-
flict, most of their articles were written before the Internet existed, or at least be-
fore it was used commercially, and the majority of the articles that discuss the
Internet marketing channel are conceptual. In fact, only two empirical studies on
the causes of channel conflict in multiple marketing channels, including the Inter-
net, could be found: Webb and Hogan (2002), which is based on Webb’s (1997)
doctoral dissertation, and the first part of this research (see Chapter 2). Webb (1997)
conducted empirical research of four companies that were using multiple market-
ing channels, including the Internet. It must be noted, though, that only one of
these companies used the Internet as a sales channel. The case studies of these
companies indicate that communication and coordination exert the most influence
on conflict, and that domain similarity and goal incompatibility, instead of influ-
encing conflict directly, represent issues about which conflict-related disagreements
occur (Webb, 1997). However, the aspect of coordination is included in the con-
cept of domain dissensus (see Section 4.1.2, p. 116 for a further discussion). In addi-
tion, Webb (1997) concludes that the “properties of some of the measurement
scales, most notably domain similarity and goal incompatibility were very poor” (p.
197), and therefore the results of his study should be interpreted with caution.

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___________________________________________ DEVELOPING A RESEARCH MODEL ______

Moreover, in the first study of this dissertation (see Chapter 2), goal incompatibility,
domain dissensus and inadequate communication were found to be the major causes of
channel conflict. Therefore, it was concluded that further empirical research is
needed to evaluate whether one of the generally accepted causes of channel con-
flict – differing perceptions of reality – should be replaced with inadequate communi-
cation, which seems to cause differing perceptions of reality (see Section 4.1.3 for a
further discussion.)

Etgar (1979) instead discusses the causes of conflict in terms of attitudinal or struc-
tural. Attitudinal causes are associated with disagreements about channel roles, expecta-
tions, perceptions and communications, whereas structural causes consist of three factors:
goal divergence, competition for scarce resources and drive for autonomy. Drive for autonomy,
however, was not found to be an important source of channel conflict. The re-
maining attitudinal and structural causes can all be attributed to goal incompatibility,
domain dissensus or inadequate communication (cf. Etgar, 1979).

4.1.1      Goal Incompatibility
A goal is the future position that an organisation wishes to attain (Schmidt & Ko-
chan, 1972). Researchers claim that since the goals of one channel member very
often are not compatible with the goals of another channel member, goal incompati-
bility, and subsequently conflict, are very common (cf. Stern & Heskett, 1969;
Schmidt & Kochan, 1972; Kochan et al., 1975; Perry & Levine, 1976; Cadotte &
Stern, 1979; Etgar, 1979; Coughlan et al., 2001). Based on Reve and Stern (1979)
and Cadotte and Stern (1979), the following definition of goal incompatibility is
proposed:

Goal incompatibility is the extent to which different members of a marketing channel perceive
that simultaneous goal accomplishment is impossible.

With the use of resellers, it becomes even more apparent that the goals of different
channel members often are incompatible. Even though the use of resellers is much
cheaper and offers the business greater flexibility, compared to a business-owned
sales force (e.g., Friedman & Furey, 1999), coordinating relationships with resellers
is a challenge, as they are independent businesses with multiple suppliers and prod-
uct lines (Coughlan et al., 2001). Both the reseller and the supplier want to maxi-
mise their profits. However, their ideas of how this should be accomplished often
differ (Friedman & Furey, 1999). For the reseller it could mean charging customers
more, while at the same time holding down expenses. The supplier, on the other
hand, wants to see the reseller do almost exactly the reverse (Coughlan et al.,
2001). Accordingly, conflict issues might include whether prices and service are
being maintained at “reasonable” levels (Reve & Stern, 1979).

Despite the above, the goals of channel members have seldom been included in re-
search on marketing channels (Achrol & Etzel, 2003). In fact, only a few empirical

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studies that investigated to at least some extent the relationship between goal in-
compatibility and channel conflict could be found in the channel conflict literature
(cf. Assael, 1969; Rosenberg & Stern, 1971; Rosenberg, 1974; Etgar, 1979; Eliash-
berg & Michie, 1984; Arndt & Ogaard, 1986; Webb, 1997; Webb & Hogan,
2002). Assael (1969) conducted a content analysis of the frequency and intensity of
conflict as documented in government and trade publications. This analysis led to
the suggestion that goal incompatibility caused ‘friction’ between producers and re-
sellers. Similarly, Rosenberg (1974), in a qualitative study of distribution managers,
suggested that incompatible goals between channel members create ‘a level of ten-
sion’.

Among quantitative studies on the relationship between goal incompatibility and
level of channel conflict, Rosenberg and Stern (1971) conducted a case study of a
manufacturer-dealer-distributor channel. They found statistical support for goal in-
compatibility as a cause of conflict between manufacturers and distributors, and be-
tween manufacturers and dealers, but not between distributors and dealers. On the
contrary, Arndt and Ogaard (1986) found statistical support for goal incompatibility
as a cause of channel conflict in all their researched relationships. However, judg-
ing from the sample item that they provide, which supposedly measures goal in-
compatibility (“The manufacturer often wants us to carry so many new cars that
our inventory becomes too large”), it seems more likely that the item measured
disagreement on stock-keeping than underlying goal incompatibility (cf. Arndt &
Ogaard, 1986, p. 193). On the other hand, in their article based on Webb (1997),
Webb and Hogan (2002) found statistical support for the hypothesized relationship
between goal incompatibility and intensity of channel conflict, but not between
goal incompatibility and frequency of conflict. In contrast, Etgar (1979) differenti-
ated between perceived (cognitive/affective) conflict and behavioural/manifest
conflict. He found that goal incompatibility correlated much higher with manifest
conflict than with perceived conflict.

Finally, Eliashberg and Michie (1984) investigated the impact of a variety of differ-
ent multiple business goal on the perception of the level of conflict in marketing
channels. They studied a number of different business goals, and they asked both
franchisees and franchisors to indicate the relative importance of those goals;
thereby, they obtained indications of preference incongruities and perceptual dif-
ferences between franchisees and franchisors. However, it should be noted that
their study did not measure whether these differences in goals were incompatible.
This might explain the inconclusive relationships that they found between differing
business goals and the level of channel conflict.

Nevertheless, the main reason why so few researchers have included channel
member goals in research on marketing channels might be that it is often assumed
that resellers’ goals are an extension of producers’ goals (Achrol & Etzel, 2003),
even though the previous discussion clearly indicates that this is not the case. An-

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other reason, which Brown, Lusch and Smith (1991) refer to, is that, in a concep-
tual paper, Stern and Gorman (1969) claim that “Goals are not the cause of con-
flict; it is the behavior patterns pursued to achieve goals that interfere with goal at-
tainment of other system members. It is true that goals produce behavior, but it is
behavior, not the goals, which frustrates.” (p. 163). Yet, as previously stated, the
parties in a conflict may not even be aware of its underlying causes (Ong et al.,
1990). In other words, it seems that incompatible goals are the cause of conflict,
whereas frustration behaviour is the symptom. It would therefore seem illogical to
exclude goal incompatibility as a cause of channel conflict. Accordingly, the fol-
lowing hypothesis is proposed:
 H1: The level of goal incompatibility among multiple marketing channels is positively
 associated with the level of channel conflict.

Also, when an Internet channel is added, goal incompatibility can occur if the
manufacturer wants to maximize its profits over the totality of its marketing chan-
nels, including the online channel, since the Internet channel may offer the manu-
facturer a higher margin on sales than do the traditional bricks-and-mortar chan-
nels (Coughlan et al., 2001). In addition, in order to cover the costs of establishing
and operating the new channel, customers may have to be pushed to buy directly
from the online channel rather than through the resellers (ibid.). It seems likely
that this “push” of customers will lead to domain dissensus, since the different chan-
nels will compete to reach the same customers (see Section 4.1.2 for a further dis-
cussion on domain dissensus). Accordingly, the following hypothesis is proposed:

 H2: The level of goal incompatibility among multiple marketing channels is positively
 associated with the level of domain dissensus.


4.1.2     Domain Dissensus
The three critical elements of a channel domain are (1) the products to be offered; (2)
the population to be served; and (3) the services to be rendered or functions to be performed
(cf. Rosenberg & Stern, 1971). Webb and Lambe (2007) refer to these three ele-
ments as the external sources of domain dissensus. They further discuss the internal
sources of domain dissensus, which are “funding allocation, employee skills, and
reliance among the channels on common manufacturing units.” (p. 33). Webb and
Lambe (2007) researched internal multi-channel conflict by interviewing managers
on the producer side of the producer-reseller dyad; therefore, they included both
internal and external sources of domain dissensus. The present study, however, is
intended to measure resellers’ perception of domain dissensus with regards to the
focal producer. Hence, the study of domain dissensus will be limited to external
sources. Therefore, based on Rosenberg and Stern (1971) and Foster and Shup-
trine (1974), the following definition is proposed:


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Domain dissensus exists when channel members’ claims are incongruent in terms of (1) the
products to be offered, (2) the population to be served, and/or (3) the services to be rendered
or functions to be performed.

Webb (1997) discusses coordination as one of the most influential causes of con-
flict. However, coordination is included in the concept of domain dissensus, since
the three critical elements of the channel domain imply coordination. Conflict is-
sues with regards to domain dissensus might include who has the right to represent
a particular product within a given territory (Stern & El-Ansary, 1977; Reve &
Stern, 1979; Magrath & Hardy, 1987). Specifically, when manufacturers use several
marketing channels simultaneously, these channels sometimes find themselves
competing to reach the same customers. This might cause distributors and dealers
to be bypassed by direct selling, which almost certainly will cause channel conflict
(Magrath & Hardy, 1987; Bucklin et al., 1997).

Among empirical studies investigating the causes of channel conflict, domain dis-
sensus, or at least some of the three elements included in the definition of domain
dissensus, seems to be the most researched cause; even so, relatively few studies
have been conducted (cf. Assael, 1969; Rosenberg & Stern, 1971; Foster & Shup-
trine, 1974; Shuptrine & Foster, 1976; Etgar, 1979; Ross & Lusch, 1982; Arndt &
Ogaard, 1986; Frazier et al., 1989; Brown & Fern, 1992; Webb, 1997; Webb &
Hogan, 2002). With one exception (Ross & Lusch, 1982), these studies found at
least some support for domain dissensus (or components of domain dissensus) as a
cause of channel conflict. Nevertheless, although Webb and Hogan (2002), (which
is based on Webb (1997)), conducted their study after the Internet started being
used commercially, they did not distinguish Internet-related domain dissensus from
other kinds of domain dissensus. In other words, no empirical study could be
found that explicitly researched Internet-related domain dissensus.

Even so, researchers claim that, because the Internet has allowed businesses to es-
tablish a direct channel to customers, the emergence of e-commerce has made do-
main conflicts an even more burning issue (cf. Alba et al., 1997). A manufacturer
selling online may directly cannibalize the customers of the bricks-and-mortar
channel, thereby causing conflict over the population to be served (Coughlan et
al., 2001). The bricks-and-mortar channel, of course, is convinced that the cus-
tomers who choose to shop online at the manufacturer’s site would shop in a
physical store if the web site did not exist. Furthermore, the Internet pushes old
territorial borders aside, since it can take away business from any location in the
market area served by the bricks-and-mortar channel, thereby causing domain con-
flict over territorial rights (ibid.). Accordingly, the following hypothesis is pro-
posed:
 H3: The level of domain dissensus among multiple marketing channels is positively as-
 sociated with the level of channel conflict.

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4.1.3     Inadequate Communication
Even though the individual goals within the marketing system may correspond
with one another, and the domains may be well defined, channel conflict still may
occur due to differing perceptions of reality, i.e. channel members having conflicting
perceptions of the same situation (Stern & Heskett, 1969). This is an important
source of conflict, because it indicates that there will be different responses to the
situation, which will frustrate channel members and produce conflict (Coughlan et
al., 2001). One major reason for differing perceptions of reality is that different
channel members are exposed to different information and influences, giving them
different pieces of the overall picture (Coughlan et al., 2001). As Mohr and Nevin
(1990) contend, communication is “the glue that holds together a channel of dis-
tribution” (p. 36). That is, in order to achieve the needed coordination among
channel members, adequate communication within the channel is necessary. For
instance, information about new products, promotional campaigns, technical inno-
vations, etc., has to be transferred from the producer to the resellers, whereas resel-
lers have to inform the producer about market conditions, customers reactions to
products and so on (Etgar, 1979). Furthermore, if the role of each channel is
clearly and explicitly communicated, unwanted conflict can be effectively elimi-
nated even before it occurs (Webb, 1997). In other words, frequent two-way in-
terchanges are needed in order to achieve coordination among channels (Anderson
& Weitz, 1992). Nonetheless, too much communication is just as bad as too little,
since too much contact can overload channel members and have dysfunctional
consequences (Mohr & Nevin, 1990).

When communication is working properly, it reduces dysfunctional conflict and
nurtures confidence in the continuity of the relationship, i.e. commitment and loy-
alty are cultivated (e.g., Anderson & Weitz, 1992). On the other hand, when
communication is inadequate, misunderstandings will occur, incorrect strategies
will be implemented, and mutual feelings of frustration will arise (Etgar, 1979).
Accordingly, if there are communication problems within a marketing channel,
different channel members will perceive the reality differently. If one uses this per-
spective in analysing the table based on Rosenberg and Stern’s (1971) research on
the different causes of conflict (see Appendix 1), it becomes clear that different percep-
tions of reality is not really a cause; instead, it consists of issues that seem related to
inadequate communication or domain dissensus, even though some of their sample is-
sues do not seem to reflect conflict. Yet, some of their miscellaneous conflict issues
might best be categorised as caused by inadequate communication, although this is im-
possible to confirm with certainty without access to the original research data.

Nevertheless, Coughlan et al. (2001) argue that differing perceptions of reality also
occur frequently between manufacturers and resellers when manufacturers add the
Internet sales channel to existing bricks-and-mortar channels. Manufacturers often
believe that they are just expanding their market reach, generating sales from con-


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sumers who can or will purchase the company’s products only through the Inter-
net. Actually, 38 percent of the survey respondents who spent more online on
holiday gifts in 1999 than in 1998 gave as their reason that they were able to pur-
chase products online that were not accessible to them near where they lived or
worked. Even so, Coughlan et al. (2001) continue, bricks-and-mortar resellers
probably will perceive sales made on the manufacturer’s web site as having been
stolen from them. However, when one looks closer at Coughlan et al.’s (2001) dis-
cussion on differing perceptions of reality as a cause of conflict in an Internet con-
text, it is apparent that their example illustrates a communication problem. In the
survey they refer to, online customers responded that they were able to purchase
products online that were not easily accessible to them otherwise. Thus, according
to Coughlan et al. (2001), the manufacturer was not stealing sales from its bricks-
and-mortar resellers, even though the bricks-and-mortar resellers probably thought
it was. Hence, the goals of the companies were not in reality incompatible, even if
the resellers perceived it that way. It should have been possible to pass the results
from this survey on to the resellers in order to defuse the conflict situation. The
failure to do so is nothing more than inadequate communication.

In their empirical study, Arndt and Ogaard (1986) researched differing perceptions
of reality as a cause of channel conflict. They described perceptual divergence as
follows: “Perceptions about environmental factors and bout the relative efficacy of
using alternative elements of the marketing mix form the base for developing ac-
tion in response to changes in the task environment. hence, incongruent percep-
tions may cause incompatible behaviors causing conflict.” (p. 191). Although they
found statistical support for the hypothesized relationship in all cases, their example
item, “Sometimes I get the impression that the manufacturer and I are not getting
through to each other” (p. 193), actually seems to measure inadequate communi-
cation rather than perceptual divergence, as defined by the authors.

Ross and Lusch (1982) also examined differing perceptions of reality as a cause of
conflict, but they failed to find statistical support for this relationship. Nevertheless,
when describing what perceptual incongruity is, they argue that in a broker-
wholesaler channel one critical issue is the extent to which brokers should provide
wholesalers with assistance. They continue, “In deciding which assistances to pro-
vide and emphasize, brokers must know how important the various assistances are
to wholesalers. In so doing brokers will develop perceptions of which assistances
are most important. At the same time, food wholesalers also have perceptions of
the importance of these assistances. To the extent that these entities differ in their
evaluation of the importance of these assistances, perceptual incongruities will be
present.” (p. 243). However, it seems that these perceptual incongruities actually
are caused by inadequate communication within the channel system.

Hence, what previous researchers (Stern & Heskett, 1969; Rosenberg & Stern,
1971; Ross & Lusch, 1982; Arndt & Ogaard, 1986; Coughlan et al., 2001) have la-

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belled as different perceptions of reality seems to be a symptom of inadequate
communication. Two studies could be found that hypothesized inadequate com-
munication as a cause of channel conflict: Etgar (1979) found some evidence for
the hypothesized relationship, but Anderson and Narus (1984) could not test the
hypothesis because they had to drop all items designed to estimate communication.

One important aspect of communication is information sharing, which refers to
the extent to which critical, often proprietary, information is communicated to
one’s partner (Mohr & Spekman, 1994). Although some researchers have studied
the content aspect of communication (e.g., Frazier & Summers, 1984), it will not be
included in this study, since channel researchers usually treat content as an issue re-
lated to influence strategies rather than to channel communication (cf. Li & Dant,
1997). However, it should be possible, without actually investigating the content
of communication, to explore in more general terms whether one party perceives
that the other party is keeping them well informed. In view of this consideration,
the following definition is proposed:

Inadequate communication occurs when communication in marketing channels is improper in
terms of information sharing, frequency, and relevancy.

Keeping in mind Mohr and Nevin’s (1990) statement that too much communica-
tion can be just as bad as too little, the term improper was chosen since it implies
that communication can be too excessive as well as too limited. The above discus-
sion leads to the following hypotheses:

 H4: The level of inadequate communication among multiple marketing channels is posi-
 tively associated with the level of goal incompatibility.

 H5: The level of inadequate communication among multiple marketing channels is posi-
 tively associated with the level of domain dissensus.

 H6: The level of inadequate communication among multiple marketing channels is posi-
 tively associated with the level of channel conflict.

4.2 Channel Conflict


I    n the literature, conflict has often been considered as a process composed of a
     series of conflict episodes (e.g., Pondy, 1967; Rosenberg & Stern, 1971).
     Pondy (1967), for instance, treats conflict as a dynamic process consisting of a
series of episodes that build upon one another, each episode including five stages:
(1) latent conflict (the antecedent conditions); (2) perceived conflict (cognition); (3) felt
conflict (affective state); (4) manifest conflict (overt behaviour); and (5) conflict aftermath
(post-conflict conduct; either suppression or resolution). Pondy’s latent conflict is

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similar to what in this thesis is labelled causes of channel conflict (see Section 4.1). Per-
ceived conflict occurs when a channel member becomes aware of underlying incom-
patibilities with another channel member, whereas felt conflict occurs when these in-
compatibilities turn into feelings of hostility (Pondy, 1967). Manifest conflict refers to
overt responses to perceived and/or affective conflict, i.e. when disagreements are
communicated either verbally or in writing to the other channel member (Lusch,
1976b). The residual perceptions and feelings of a conflict episode form the conflict
aftermath and become the latent state for future conflict episodes (Pondy, 1967).
This means that each conflict situation will be interpreted by channel members
based on the history of their relationship. If conflict frequently occurs in the chan-
nel relationship, each new conflict situation will judged by a channel member as if
its counterpart is incompetent, operates in bad faith and so on (Coughlan et al.,
2001). One of the characteristics of a dysfunctional conflict is that, as time goes on,
it is difficult to say what the conflict is about (Mack & Snyder, 1957). A positive
relationship history, on the contrary, creates a positive future, since an incident of
conflict will be de-emphasised or interpreted tolerantly (Coughlan et al., 2001).

However, as noted by Schmidt and Kochan (1972), a problem with the conflict-
process approach is that it is very difficult to separate the various states of the proc-
ess from one another. Brown and Day (1981) provide a possible solution to this di-
lemma by treating channel conflict as a process similar to that proposed by Pondy
(1967), but they examine only the manifest level of channel conflict. Even this ap-
proach might pose a problem, since researchers are not always clear about what
they have actually measured. Lusch (1976b), for instance, contends that although
the measures used in his study were intended to measure manifest conflict, affective
conflict might also have been measured, since resellers might have strong disagree-
ments with, but never voice them to, the producer. In fact, he might even have
measured some perceived conflict, since resellers might disagree with the producer
without feeling hostility about the disagreement.

In addition, Gaski and Nevin (1985) claim that it is important to treat channel
conflict according to its definition10: as a perceptually based construct. Bernard
((1949) ref. to in Gaski & Nevin, 1985) argues that this is because the conflict may
exist for years in its latent form before it becomes a crisis, and that it therefore is a
mistake to limit the study of conflict to its overt state. Therefore, it is channel
members’ perception of channel conflict that should be studied (Gaski & Nevin,
1985). Indeed, several researchers have explicitly focused on perceived conflict in
marketing channels (e.g., Rosenberg & Stern, 1971; Rosson & Ford, 1982; Eli-
ashberg & Michie, 1984).



10
     See Chapter 1, Section 1.4.1 for the definition of channel conflict used in this thesis.

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Since it has been established that it is important to study perceived conflict (Ber-
nard ((1949) ref. to in Gaski & Nevin, 1985)), resellers’ perceptions on conflict in
marketing channels will be researched in this study.

4.2.1     Level of Channel Conflict
Ong et al. (1990) conclude that, whereas causes are the underlying bases of conflict
of which channel members may not ever be aware, conflict issues can be regarded
as symptoms of these causes, which are prone to change over time. Consequently,
the most common method to measure conflict is to first identify issues over which
companies in a marketing channel might disagree, through a literature review and
then pre-testing; thereafter, respondents have been asked to indicate the level of
conflict on each of these issues (see Table 4.1 for an overview of such studies).
Table 4.1 Previous Measures of Marketing Channel Conflict
 Studies that (1) identified pos-                 Conflict Dimension
 sible conflict issues and (2)      Frequency    Intensity    Importance   Satisfaction
 measured level of conflict on         (F)          (N)          (I)            (S)
 those issues
 (Rosenberg & Stern, 1971)                          N
 (Lusch, 1976a)                        F
 (Lusch, 1976b)                        F
 (Brown, 1977)                         F                          I
 (Brown & Frazier, 1978)               F                          I
 (Brown, 1979)                         F
 (Brown & Day, 1981)                   F            N             I
 (Schul, Lamb & Little, 1981)          F
 (Brown, Lusch & Muehling, 1983)       F
 (Eliashberg & Michie, 1984)           F            N
 (Dilts, 1985)                         F            N
 (Arndt & Ogaard, 1986)                F            N             I
 (Moore, 1990)                         F            N
 (Brown et al., 1991)                  F                                        S
 (Katsikeas & Piercy, 1991)            F            N
 (Katsikeas, 1992)                     F            N
 (Cronin & Baker, 1993)                F            N             I
 (Ganesan, 1993)                                    N             I
 (Price, 1993)                         F            N
 (Lee, 2001)                           F

Measures of conflict level include the degree of conflict about an issue, i.e. intensity
(Rosenberg & Stern, 1971); the frequency of disagreement about the issue (Lusch,
1976a, 1976b; Brown, 1979; Schul et al., 1981; Brown et al., 1983; Lee, 2001);
the frequency and intensity of disagreement about the issue (Eliashberg & Michie,
1984; Dilts, 1985; Moore, 1990; Katsikeas & Piercy, 1991; Katsikeas, 1992; Price,
1993); the frequency and importance of the issue (Brown, 1977; Brown & Frazier,
1978); the intensity and importance of the issue (Ganesan, 1993); the frequency of dis-
agreement and degree of satisfaction about the issue (Brown et al., 1991); and the

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frequency, intensity and importance of the issue (Arndt & Ogaard, 1986; Cronin &
Baker, 1993).

Brown and Day (1981) conducted a study using the above method, where they
measured conflict over a number of issues by the separate measures of frequency, in-
tensity and importance. They asked resellers to recall discussions with the producer’s
representative over 15 conflict issues during a certain year. Thereafter, the resellers
were asked to estimate on an 11-point scale (0-10) the percentage of the discus-
sions that pertained to each issue (frequency). Intensity was measured on a 7-point
scale ranging from “not very intense” to “very intense”, and the importance of
each issue to the reseller company’s overall profitability was measured on an 11-
point scale, ranging from “very unimportant” to “very important”. When the re-
searchers evaluated different combinations of these measures, they found that the
measure combining frequency, intensity and normalised importance weights
multiplicatively (F * N * I´) was superior to the other combinations. They also
found three other measures that performed well: frequency multiplied by intensity
(F * N), frequency plus intensity (F + N), and intensity alone (N).

Since (1) previous research suggests that including in the questionnaire all three
conflict measures (i.e. frequency, intensity and importance) for each conflict issue
might lead to respondent fatigue (e.g., Frazier et al., 1989); (2) Brown and Day
(1981) conclude that the measures combining frequency and intensity perform well;
and (3) Dilts (1985) argues that it is not necessary to include importance when meas-
uring conflict, because the intensity of a disagreement is likely to reflect its impor-
tance, the following definition is proposed for this study:

The level of channel conflict is a channel member’s perceptions of conflict with another channel
member, in terms of frequency and intensity, over a representative set of issues.

4.3 Outcomes


O         utcomes of channel exchange include economic performance and chan-
          nel members’ satisfaction (Brown et al., 1991). Since it is suggested that
          channel members’ satisfaction is related to a channel relationship’s long-
term viability (e.g., Hunt & Nevin, 1974), both performance and satisfaction are
included in the conceptual model (see Figure 4.1, p. 126).

4.3.1    Performance
A frequent assumption in the marketing literature is that conflict in marketing
channels will have an impact on the performance of that channel (e.g., Brown &
Day, 1981). However, among empirical studies on channel conflict (see Appendix 2
for an overview) surprisingly few have actually addressed the relationship between
channel conflict and performance (cf. Assael, 1969; Pearson, 1973; Lusch, 1976a;


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Pearson & Monoky, 1976; Kelly & Peters, 1977; Rosson & Ford, 1980; Schul et
al., 1981; Rosson & Ford, 1982; Anderson & Narus, 1984; Anderson & Narus,
1990; Cronin & Baker, 1993; Webb, 1997; Webb & Hogan, 2002; Duarte & Da-
vies, 2003).

In addition, not all of the above studies researched how the level of channel con-
flict impacts the performance of that channel. Instead, some have investigated the
reverse relationship, i.e. how performance impacts the level of channel conflict.
That is, Anderson and Narus (1984; 1990) studied how the current evaluation of
past relationship outcomes impacts the level of channel conflict indirectly. Like-
wise, Schul et al. (1981) hypothesized that channel members’ perceptions of past
performance are an antecedent of conflict.

Duarte and Davies (2003), on the other hand, were interested only in the shape of
the relationship between channel conflict and performance, the latter defined in
terms of effectiveness and efficiency. They found that a linear model predicted ef-
fectiveness best, whereas an S curve better described the relationship between con-
flict and efficiency. However, they did not attempt to investigate the direction of
the conflict-performance relationship.

Studies that investigated how the level of channel conflict impacts performance
have yielded ambiguous results. Pearson (1973) failed to find a significant differ-
ence in performance between channels characterised by conflict and channels char-
acterised by cooperation. Webb (1997), on the other hand, did not research the di-
rect relationship between the level of channel conflict and its impact on perform-
ance; instead, he included a products’ life cycle stage (emergence, growth, and ma-
turity-decline) as a moderator, but he failed to find statistical support for the rela-
tionship. Nevertheless, when analysing the same data more thoroughly, Webb and
Hogan (2002) found that the negative effects of frequency of conflict on channel
performance increased in the maturity-decline stage of the product life cycle, rela-
tive to the growth stage. They also studied the direct relationship between per-
formance and conflict, and they found that the greater the frequency of channel
conflict, the lower the level of channel performance. A few other studies also
found at least some evidence that higher levels of conflict is negatively related to
performance (cf. Lusch, 1976a; Pearson & Monoky, 1976; Kelly & Peters, 1977;
Cronin & Baker, 1993). Similarly, Rosson and Ford (1980; 1982) found that the
lower the level of channel conflict, the higher the level of performance.

As can be seen, the findings regarding the relationship between channel conflict
and performance are rather indefinite. Reasons for this could be that the studies
used very different, and sometimes even inappropriate, measures of performance.
Pearson (1973), for instance, used three different performance measures, i.e. service
level, turnover and adjusted turnover. However, as previously stated, he failed to


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find support for the conflict-performance relationship, and he concluded that two
of the performance measures, service level and turnover, actually were contradic-
tory. Lusch (1976a) used dealers’ return on asset and dealers’ asset turnover to
measure operating performance. However, he concluded that these two measures
were subject to error, since different dealerships use different accounting methods.
Other measures of performance that have been used include the level of service
provided by the wholesaler (Pearson & Monoky, 1976), distributors’/franchisees’
perceptions of their profitability compared to that of similar operations (Kelly &
Peters, 1977), manufacturers’ real and perceived results from export relationship,
i.e. trends in foreign market sales, satisfaction with foreign market sales, coopera-
tiveness of the relationship, and satisfaction with the relationship (Rosson & Ford,
1980), payoff from using a target manufacturer (Cronin & Baker, 1993), and man-
agers’ perception of channel system performance (Webb, 1997; Webb & Hogan,
2002).

A company’s performance is undoubtedly of greatest concern to managers. There-
fore, this study will investigate how the level of channel conflict affects perform-
ance. Day and Nedungadi (1994) found that most managers base their decisions on
how they perceive the financial performance of their business, rather than on more
objective measures of performance. Accordingly, perceptual measures of perform-
ance will be used in this research. Based on the definition provided by Li and Dant
(1997, p. 202), the following definition is proposed:

Perceived performance is a channel member’s overall evaluation and assessment of the out-
comes achieved within an exchange relationship with another channel member.

Hence, the following hypothesis:
 H7: The level of channel conflict among multiple marketing channels is negatively asso-
 ciated with the level of perceived performance.

Cronin and Baker (1993) found that as the performance of a working relationship
increases, the level of satisfaction increases. Hence, the following hypothesis is pro-
posed:

 H8: The level of perceived performance is positively associated with the level of perceived
 satisfaction with the channel system.


4.3.2      Satisfaction
Channel member satisfaction is important for several reasons. Perhaps most impor-
tant is the belief that satisfied channel members will cooperate much better than
dissatisfied ones, and thus be less likely to terminate the relationship (Hunt &


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Nevin, 1974). Nevertheless, just like performance, satisfaction in marketing chan-
nels has been measured in numerous ways.

Measures of performance and satisfaction have not always been differentiated. As
noted in the previous section, Rosson and Ford (1980) included satisfaction with
foreign market sales as one of several performance measures. But even when satis-
faction has been measured as a separate construct, there is no consensus regarding
its conceptualisation. For instance, satisfaction has been measured by how satisfied
the parties were with the performance of the other party (Rosenberg & Stern,
1971; Wilkinson, 1981; Cronin & Baker, 1993), and by how satisfied channel
members’ were with a negotiation with the other party (Ganesan, 1993). Several
researchers have measured channel member’s satisfaction, or dissatisfaction, with
the channel relationship or arrangement (Brown & Frazier, 1978; Schul et al.,
1981; Anderson & Narus, 1984; Gaski & Nevin, 1985; Arndt & Ogaard, 1986;
Frazier et al., 1989; Anderson & Narus, 1990; Price, 1993; Rawwas, Vitell & Bar-
nes, 1997; Webb, 1997; Lee, 2001; Webb & Hogan, 2002; Leonidou, Barnes &
Talias, 2006). Others have focused explicitly on channel members’ economic satis-
faction, such as the parties’ satisfaction with their rewards (Dwyer, 1980), or the
difference between channel members’ expectations and actual profits (Brown et al.,
1991).

Since the main focus of this study is the addition of the Internet direct sales chan-
nel, satisfaction with the channel arrangement will be measured in general terms.
Accordingly, for this study the following definition, adapted from Gaski and Nevin
(1985, p. 131), will be used:

Satisfaction is a channel member’s overall approval of the channel arrangement.

It is true that both channel conflict and satisfaction were included in Price’s (1993)
and Gaski and Nevin’s (1985) studies, but the relationship between these constructs
was never investigated. Brown and Frazier (1978) did not hypothesize a relation-
ship between satisfaction and level of channel conflict directly, but they nonethe-
less found that higher levels of conflict were related with lower levels of satisfaction
in the channel relationship. Anderson and Narus (1984), on the other hand, hy-
pothesized that the level of channel conflict would be negatively associated with
the level of satisfaction. However, the measures that they used to measure the level
of conflict and the level of satisfaction were not sufficiently distinct. Instead, they
combined those two constructs to form a cooperation/satisfaction construct, which
they used for model testing. Thus, their hypothesized relationship between level of
channel conflict and satisfaction could not be tested.

Among those who actually have researched the relationship between channel con-
flict and satisfaction, the direction of the relationship has varied. Some researchers


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have found that higher level of satisfaction leads to lower levels of channel conflict
(Schul et al., 1981; Brown et al., 1991). But the main stream of channel conflict
research has investigated the opposite direction of the relationship. That is, several
researchers have found that as the level of conflict increases, the level of satisfaction
decreases (cf. Dwyer, 1980; Wilkinson, 1981; Arndt & Ogaard, 1986; Frazier et al.,
1989; Anderson & Narus, 1990; Cronin & Baker, 1993; Ganesan, 1993; Rawwas
et al., 1997; Webb, 1997; Lee, 2001; Webb & Hogan, 2002; Leonidou et al.,
2006). Thus, following the main stream of research on channel conflict, the fol-
lowing hypothesis is proposed:

 H9: The level of channel conflict is negatively associated with perceived satisfaction with
 the channel system.


4.4 Research Model & Hypothesis Overview


A        graphical presentation of the frame of reference helps to define what will,
         and will not, be studied (Miles & Huberman, 1994). Accordingly, the re-
         search model representing the above hypothesized relationships is provided
in Figure 4.1. In addition, a summary of the hypotheses is presented in Table 4.2.

          GOAL
     INCOMPATIBILITY                                                   PERFORMANCE
                                 H1+                         H7-
                  H4+

      INADEQUATE               H6+          LEVEL OF
     COMMUNICATION                          CHANNEL
                                            CONFLICT

 H2+              H5+                                                              H8+
         DOMAIN                  H3+                         H9-
        DISSENSUS                                                      SATISFACTION




Figure 4.1 Research Model




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Table 4.2 Overview of Hypotheses
 H.    Hypothesized Relationship
 no.
 H1    The level of goal incompatibility among multiple marketing channels is positively associ-
       ated with the level of channel conflict.
 H2    The level of goal incompatibility among multiple marketing channels is positively associ-
       ated with the level of domain dissensus.
 H3    The level of domain dissensus among multiple marketing channels is positively associated
       with the level of channel conflict.
 H4    The level of inadequate communication among multiple marketing channels is positively
       associated with the level of goal incompatibility.
 H5    The level of inadequate communication among multiple marketing channels is positively
       associated with the level of domain dissensus.
 H6    The level of inadequate communication among multiple marketing channels is positively
       associated with the level of channel conflict.
 H7    The level of channel conflict among multiple marketing channels is negatively associated
       with the level of perceived performance.
 H8    The level of perceived performance is positively associated with the level of perceived sat-
       isfaction with the channel system
 H9    The level of channel conflict is negatively associated with the level of perceived satisfac-
       tion with the channel system.




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5 METHODOLOGY
In this chapter, a description of the methodology used to answer the research questions will be
presented. First, the research purpose will be discussed, followed by the research approach, the
research strategy, data collection, data analysis and, finally, issues of validity and reliability.

This chapter addresses the methodological issues of Study II. The methodological
issues pertaining to the first study are presented in Chapter 2.3, p. 37.

5.1 Research Purpose


H          air, Money, Samouel and Page (2007) discuss research purposes as ex-
           ploratory, descriptive, or causal. Exploratory research is used to study a little-
           understood phenomenon, to identify or discover central categories of
meaning (Marshall & Rossman, 1999) and/or when the goal is to develop hy-
potheses and propositions for further research (Marshall & Rossman, 1999; Yin,
2003). Descriptive research is used when the purpose is to document and describe
the phenomenon under consideration (Marshall & Rossman, 1999). Most surveys
are descriptive (Hair et al., 2007). Causal research is used to test whether or not
one event causes another. The cause must occur before the effect, the two con-
structs must be related to each other, a theoretical explanation is needed, and other
potential causes must be controlled or eliminated. When trying to establish cause
and effect, an experiment is appropriate (ibid.). Since few empirical studies of con-
flict in multiple marketing channels, including the Internet, have been conducted
(see Chapter 4.1 for a further discussion on previous research), this research was to
some extent exploratory. However, since existing theories within the channel con-
flict area were used to describe resellers’ perspectives on conflict in multiple mar-
keting channels including the Internet, the research purpose was also descriptive. In
other words, the purpose was both exploratory and descriptive.

5.2 Research Approach


T        he research approach can be either quantitative, qualitative, or a combination
         of the two (Sullivan, 2001). Quantitative research involves numbers, counts
         and measures of things, whereas qualitative research involves mainly words,
pictures, descriptions, or narratives (ibid.). Which approach to choose depends
mainly on two factors: the state of knowledge of the research problem, and the re-
searcher’s assessment of the nature of the phenomenon to be studied (Sullivan, 2001).
When there is enough previous research on the phenomenon, constructs and hy-
potheses can be developed. As for knowledge of the research problem, the first study
(see Chapter 2) provides a good preliminary understanding of the research problem,
which along with existing theories made it possible to formulate hypotheses. As for
the phenomenon to be studied, i.e. resellers’ perspectives on conflict in multiple mar-
keting channels with a focus on the Internet, it is valuable to include the views of


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as many resellers as possible, since quantification provides much more objective
measures of the phenomenon (Sullivan, 2001). Accordingly, the quantitative research
approach was chosen for this study.

5.3 Research Strategy


F       ive major research strategies exist: experiment, survey, archival analysis, history
        and case study (Yin, 2003). All of them have different advantages, and they
        are chosen depending on the type of research question(s) asked, whether
control over behavioural events is needed, and/or whether the focus is on con-
temporary events. It should be noted that the contrast between quantitative and
qualitative evidence does not distinguish the various research strategies. In other
words, case studies should not be confused with qualitative research, since they can
include, or even be limited to, quantitative research (ibid.). The research questions
of this study were formulated as how-questions. When research questions focus
mainly on ‘why’- or ‘how’-questions, the best research strategy will probably be
case studies, histories, or experiments (Yin, 2003). Since the focus was on channel
conflict when companies added the Internet marketing channel, the research prob-
lem of this thesis was contemporary, thus ruling out histories. Among the remain-
ing strategies, experiments require control over the behaviour of the subjects,
whereas case studies are preferred when the relevant behaviour cannot be manipu-
lated (cf. Yin, 2003). Since the researcher had no influence over resellers’ perspec-
tives on conflict in multiple marketing channels, and since this study aimed at ex-
ploring and describing resellers’ perspectives on this phenomenon, the case study re-
search strategy was judged to be most appropriate for this research.

A case study can be described as a research strategy that focuses on the understand-
ing of the dynamics present in a single setting (Eisenhardt, 1989). The researcher
can decide to conduct research on one single case or on multiple cases. A single-
case study can be used, e.g., when the case is critical for testing a well formulated
theory, or when the case is extreme or unique (Yin, 2003). Multiple-case studies
involve, as the name implies, more than one case. The disadvantage of multiple-
case studies is that they require more time and resources than single-case studies.
The advantage, though, is that they provide more compelling evidence and are
more robust (ibid.). Since this research was not dependent on a single unique case,
and since multiple-case studies are judged to be more robust, a multiple-case study
was chosen for this research.

5.4 The Empirical Investigation


D        ata reduction can be described as an analysis that sharpens, sorts, focuses,
         discards, and organises data so that conclusions can be drawn (Miles &
         Huberman, 1994). It is a process that starts even before data is collected,
since data collection is guided by the researcher’s decisions on which cases to in-


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clude, the research questions, the conceptual frame of reference, approaches to data
collection, and so on (ibid.). In the following sections, the sample selection proce-
dure, questionnaire development, data collection, and response rate will be pre-
sented, followed by a discussion of how the data were analysed.

5.4.1      Sample
Even if one would like to, one cannot study everyone, everywhere, doing every-
thing. Choices regarding whom to study, where, when, about what and why,
place limits on the conclusions one can draw (Miles & Huberman, 1994). The sub-
jects one chooses to look at, or talk with, form the sample (Chisnall, 1997). In the
first study, the producers’ perspective was studied, whereas the present study aims
at capturing the resellers’ perspective. Since few studies exist where both producers’
and resellers’ perspectives on channel conflict have been empirically researched (see
Appendix 2 for an overview), it was decided to study resellers of the previously
studied companies Ducati and SAS. These two companies are, as already stated, of
polar type as suggested by Eisenhardt (1989). Ducati is a manufacturing company
that makes motorcycles, whereas Scandinavian Airlines is a service business. In ad-
dition, before adding the Internet sales channel, Ducati sold its products solely
through resellers, whereas SAS sold direct-to-the-customer even before the addi-
tion of the Internet sales channel, via its telephone sales channel (see Figure 2.7, p.
58).

5.4.2     Questionnaire Development
The first study of this thesis provided a good preliminary understanding of the
working relationships between the producers and their resellers. Therefore, the first
study, along with the procedure suggested by Churchill (1979), guided the ques-
tionnaire development. First, the domain of each construct was clearly defined in
terms of what would be included or excluded. That is, since only resellers’ per-
spective will be studied in the survey, the conceptual definitions provided in the
previous chapter were transformed into operational definitions, see Table 5.1.
Thereafter, the literature was searched to locate relevant scales, which provided a
large pool of items for each construct. Based on the definition of the construct,
items were selected from this pool to cover its domain as well as possible. If scales
were not available or inappropriate, new ones were developed.

Before pre-testing, eight academics individually reviewed the questionnaire. This
review led to some modifications of the instructions, the scaling of the items, as
well as the items themselves. The questionnaire was pre-tested by a series of inter-
views on a convenience sample of managers at companies that were resellers of
SAS or Ducati. Managers at these companies were visited, and as they filled out the
questionnaires they were asked to provide suggestions for improving the clarity of
the instructions, the appropriateness of the scales, and the relevance of the items.


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Table 5.1 Conceptual and Operational Definitions of the Constructs
 Conceptual   Concept/           Conceptual Definition         Operational Definition
 Area         Construct
                                 The extent to which dif-
                                 ferent members of a mar-      The extent to which resel-
                                 keting channel perceive       lers perceive that their goals
              Goal
                                 that simultaneous goal ac-    and the focal producer’s
              Incompatibility
                                 complishment is impossi-      goals cannot be accom-
                                                               plished simultaneously.
                                 ble.
                                 Domain dissensus exists       The extent to which resel-
                                 when channel members’         lers perceive that their claims
                                 claims are incongruent in     and the focal producer’s
 Causes of                       terms of (1) products to be   claims are incongruent in
              Domain
 Channel                         offered, (2) the population   terms of (1) products to be
              Dissensus
 Conflict                        to be served, and/or (3)      offered, (2) the population
                                 the services to be rendered   to be served, and/or (3) the
                                 or functions to be per-       services to be rendered or
                                 formed.                       functions to be performed.
                                 Inadequate communica-
                                                               The extent to which resel-
                                 tion occurs when com-
                                                               lers perceive that communi-
                                 munication in marketing
              Inadequate                                       cation with the focal pro-
                                 channels is improper in
              Communication                                    ducer is improper in terms
                                 terms of information shar-
                                                               of information sharing, fre-
                                 ing, frequency, and rele-
                                                               quency, and relevancy.
                                 vancy.
                                 Channel member’s per-         Reseller’s perceptions of dis-
                                 ceptions of conflict with     agreements, in terms of fre-
              Level of
 Channel                         another channel member,       quency and intensity, be-
              Channel
 Conflict                        in terms of frequency and     tween the reseller and the
              Conflict
                                 intensity, over a represen-   focal producer over a repre-
                                 tative set of issues.         sentative set of issues.
                                 Channel member’s overall
                                                               Reseller’s overall evaluation
                                 evaluation and assessment
                                                               and assessment of the out-
                                 of the outcomes achieved
              Performance                                      comes achieved within the
                                 within an exchange rela-
                                                               exchange relationship with
 Outcomes                        tionship with another
                                                               the focal producer.
                                 channel member.
                                 A channel member’s over-      Reseller’s overall approval of
              Satisfaction       all approval of the channel   the focal channel arrange-
                                 arrangement.                  ment.

Before each additional interview, insights from the previous interview were incor-
porated into the questionnaires; some items were dropped, others were changed,
and others were added, until there appeared to be no significant ambiguities or
problems with the questionnaire. Since the questionnaire would be sent to several
countries, it was pre-tested with resellers in each of these countries: Norway, UK,
US, Canada, and Italy. Translations and back-translations of the questionnaire into
Norwegian and Italian were conducted by professional translators.


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The scale development for each construct included in this thesis (goal incompatibil-
ity, domain similarity, inadequate communication, level of channel conflict, performance, and
satisfaction) is described in detail below. Unless otherwise stated, a 7-point Likert-
type scale anchored by ’strongly disagree’ and ’strongly agree’ was used. In order to
increase reliability, multiple items were developed for each construct. Some addi-
tional items/constructs were also included in the questionnaire; they are beyond
the scope of this thesis but were retained for future research. There were very few
differences between the Ducati version and the SAS version of the questionnaire,
except that in a few cases the wording of the items and the explanatory text dif-
fered because of company/industry-related differences. As for the constructs in-
cluded in this research, there were no differences between the two versions of the
questionnaire. Accordingly, only the English version of the SAS questionnaire is
presented (see Appendix 4). The items included in this research are presented in
Table 6.1, p. 145.

Goal Incompatibility
Even though goal incompatibility has been widely recognized as a cause of con-
flict, no relevant scales could be found. Brown and Day (1981), for instance, in-
cluded goal incompatibility in their study but used only one item to measure it.
Furthermore, although John and Reve (1982) thoroughly described how their
scale items were developed, following the procedure suggested by Churchill
(1979), their actual research instrument was not included in their paper. The only
information available is that the scale consisted of 3 items, and that Cronbach’s
was 0.55. Because of the low , no attempts were made to obtain the original
scale. Instead, items were adapted from Brown and Day (1981), Arndt and Ogaard
(1986), Mohr, et al. (1996), Webb and Hogan (2002), and Webb (1997). During
field interviews respondents expressed a lack of precise knowledge about the pro-
ducers’ goals, so ‘we perceive’ was added to three of the items, e.g., ‘we perceive
that the goals of (producer’s name) are compatible with the goals of our company.’

Domain Dissensus
Items were adapted from various sources, i.e. Etgar (1979), Rueckert and Orville
(1987), Anderson and Weitz (1992), Webb (1997), and one item was of the re-
searchers’ own construction. Some of the items were rephrased to capture the do-
main dissensus derived from the producer’s direct-to-the-customer Internet sales.

Inadequate Communication
Items were adapted from McQuiston (2001), Lusch and Brown (1996), and
Anderson and Weitz (1992). Several were judged to be double-barrelled, and were
therefore divided into two separate items.




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Level of Channel Conflict
In the first study, it was found that the term ‘conflict’ was interpreted by the re-
spondents as very strong and negatively. Thus, in line with previous research (e.g.,
Katsikeas, 1992), the term ‘disagreement’ was used in the questionnaire.

Several studies in which possible conflict issues have been identified to measure the
level of channel conflict have been conducted with resellers of manufactured prod-
ucts (e.g., Lusch, 1976b; Brown & Day, 1981). Although these conflict issues per-
haps could be adapted for the Ducati reseller survey, it would be impossible to use
those items in the SAS reseller survey, since SAS is a service company and most
conflict issues in those studies were goods related. Instead, the more general con-
flict issues provided by Katsikeas and Piercy (1991) and Katsikeas (1992) were used
as a starting point. In addition to these items, items on sales commissions, pro-
ducer’s current direct-to-the-customer Internet sales, and producer’s direct-to-the-
customer Internet sales when producer introduced that sales channel, were in-
cluded. During pre-testing, one item regarding the producer’s sales organisation
was added. Finally, an open-ended item (‘Other, please specify _____’) gave re-
spondents the opportunity to add an optional conflict issue. The frequency and in-
tensity of disagreements were measured separately for all items, using 7-point
Likert-type scales. The frequency scale options ranged from ‘very infrequently’ to
‘very frequently’, whereas the intensity scale options ranged from ‘very weak’ to
‘very strong’.

Performance
As could be seen in the previous chapter, performance has been measured in many
different ways in studies of channel conflict. None of these measures were judged
to be appropriate for this research. Instead, perceived performance was measured in
terms of relationship performance and sales performance. The relationship performance scale
was adapted in full from Skarmeas, Katsikeas and Schlegelmilch (2002) and refers
to the extent to which the reseller views the focal relationship as successful. The
scale has a reported Cronbach’s of .80 (cf. Skarmeas et al., 2002).

Some researchers stress the importance of measuring the performance of a com-
pany relative to other companies (e.g., Achrol & Etzel, 2003). However, previous
research has found that people make comparative judgments based on expectations,
i.e. outcomes that are worse than expected are rated below the expectation refer-
ence point, and those that are better than expected are rated above the reference
point (cf. Oliver, 1980). In addition, Day and Nedungadi (1994) found that most
managers use their perceptions of the financial performance of their business as the
basis for decisions, rather than more objective measures. Considerations about
competitors, as well as other important factors, are reasonably included in manag-
ers’ expectations of sales performance. Accordingly, the items in the sales perform-


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ance scale were developed with regards to different aspects of the sales resulting
from the focal relationship, compared to expectations.

Satisfaction
The intention was to capture the reseller’s perception of the whole channel system:
the system between the reseller and the producer, between the reseller and the end
customer, and between the producer and the end customer. Since no appropriate
scales could be found, one item was adapted from Brown and Frazier (1978), and
the remaining items were the researchers’ own.

5.4.3    Data Collection and Response Rate
The data collection procedure for each case will be described in detail below. In
both cases the questionnaire (see Appendix 4) was delivered by mail, accompanied
by a signed cover letter and a pre-paid response envelope. Although an identifica-
tion number was put on the questionnaire, the cover letter guaranteed respon-
dents’ anonymity (see Appendix 5 for a sample cover letter).

Ducati
First, the questionnaire was translated and back-translated into Italian and Norwe-
gian by professional translators. Thereafter, addresses to resellers in Canada, Great
Britain, Ireland, Italy, Norway, Sweden and United States were obtained through
Ducati’s “Dealer Locator” service at the ducati.com web site. In total, 347 ad-
dresses to resellers of Ducati were obtained. However, some of these resellers had
been selling Ducati for only a few months and were therefore deleted. Two resel-
lers in the French part of Canada provided only French versions of their web sites,
and since the questionnaire intended for Canada was in English, these were also
deleted from the list. These deletions left 332 Ducati resellers to whom question-
naires with cover letters were mailed. The letter was addressed to the Presi-
dent/CEO. Two weeks later, follow-up cards to non-respondents were sent. Only
a few resellers responded, and therefore personal telephone calls were made to all
resellers in Sweden, Norway, Great Britain and Ireland, followed by a second mail-
ing of the questionnaire to these resellers. Because of the limited time available, re-
sellers in Canada and the US received only a second mailing of the questionnaire
and no telephone call.

A total of 44 questionnaires was returned, but one of those questionnaires was not
filled in and had to be discarded. Since 5 questionnaires were returned as undeliv-
erable, the eligible sample was 327, rendering an effective response rate of 13.1%.
The major reason for this rather low response rate is that the questionnaire was dis-
tributed in April-May 2007, the peak season for the motorcycle industry (a fact
commented upon by several resellers). Another reason is that the response rate in
Italy was very low; although the questionnaire was translated (and back-translated)
by professionals into Italian, only 5.1% of the 137 Italian resellers returned the

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questionnaire. If Italy had been excluded from the sample, the response rate would
have increased to 18.9%. Nevertheless, in a recent review of research in industrial
marketing channels, Woodside and Wilson (2003, p. 494) found that typical re-
sponse rates for mail surveys range from 8 to 30 percent, so although the effective
response rate of Ducati is rather low (13.1%), it is within the typical range.

SAS
First, the questionnaire was translated and back-translated into Norwegian by pro-
fessional translators. It proved to be a challenge to obtain addresses of SAS resellers.
Since the two persons who were involved in the first study had left the company,
their successor, i.e. the director of sales, was contacted. He, however, was not will-
ing to participate in the study. Therefore, addresses of Swedish travel agencies were
purchased from PAR, and addresses for Norwegian travel agencies were purchased
from CDG Sandberg A/S. In both cases, the addresses seemed somewhat dubious;
several were of private persons with no company name, some company names in-
dicated that the companies were active in an industry other than the travel industry
(e.g., Bay Horse & Equipment), some were duplicates, and some even represented
SAS competitors (e.g., Air France). It was therefore decided that in order to qualify
as a serious travel agency, a company address at least had to appear in the respective
country’s “yellow pages” online service (i.e. gulasidorna.eniro.se and
www.kvasir.no/firmasok). The company also had to be labelled as a travel agency,
or something similar, in the yellow pages. Even if a company was listed as a travel
agency, it was sometimes obvious that it did not sell airline tickets (e.g., Härjedals
Buss, a bus travel company), and such addresses were also excluded. After the ad-
dresses were subjected to the above criteria, their number decreased from 1237 to
667 for the Swedish travel agencies, and from 688 to 329 for the Norwegian.

Even after all this, several addresses appeared ambiguous. Therefore, in an attempt
to improve the response rate, respondents were asked in the cover letter to send
back the questionnaire even if they had never sold SAS, with a note of this fact,
since they then would avoid receiving remainders. When contact names were not
available, the letter was addressed to the President of the company (“till VD” or
“til daglig leder”). Two weeks after the mailing, reminder cards were sent to non-
respondents, which yielded a total of 54 Norwegian and 165 Swedish responses.
Out of these, 47 (7 Norwegian and 40 Swedish) were travel agencies reporting that
they did not sell SAS. In addition, 16 Norwegian and 5 Swedish questionnaires
were returned as undeliverable. Hence, the final sample for the Norwegian travel
agencies was 306. 47 usable responses rendered an effective response rate of 15.4%.
Two Swedish questionnaires were discarded as incomplete. With a final sample of
622 travel agencies and 123 usable responses, the effective response rate was 19.8%
for the Swedish travel agencies. For Norway and Sweden combined, the effective
response rate for travel agencies was 18.3%.



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Although a lot of effort was spent during the process of refining addresses to travel
agencies, this approach also had its advantages. Quite soon after the mailing, several
travel agencies got in touch with the researchers by phone, e-mail, or letter. A
number of those travel agencies told the researchers that they were not accredited
by IATA11 and explained the difference. Non-IATA travel agencies did not have
access to SAS’ extranet, sassalesinfo.com, since the IATA number functions as the
entrance code to sassalesinfo.com. According to the non-IATA travel agencies,
some years ago they were treated the same as the IATA accredited agencies. For
instance, when IATA travel agencies still received commission on sales, so did
non-IATA travel agencies. Today, when non-IATA travel agencies book tickets
with SAS they have to pay the same fee for each ticket as do private persons,
which make them quite angry with SAS. As one respondent who had had his own
travel agency for forty years put it, “I am doing SAS a favour, but instead of re-
warding me, they are charging me.”

There were several reasons why the non-IATA travel agencies did not want to join
IATA. For instance, a quite long IATA education is required. Since several man-
agers of non-IATA travel agencies were close to retirement, they found this unfea-
sible. Although it is possible to circumvent this requirement by employing person-
nel with an IATA education, there are additional requirements for IATA member-
ship, such as premises according to certain requirements. Since several non-IATA
travel agencies were home-based, they did not fulfil these requirements. A third is-
sue is that IATA accreditation requires a banker’s guarantee, which of course costs
money. Since pre-testing did not reveal that these different types of travel agencies
existed, the questionnaire did not capture whether travel agencies were IATA ac-
credited or not. Thus, non-IATA travel agencies were included in the sample,
which would not have been the case had the addresses been obtained from SAS.
This research, therefore, provides a more complete picture of travel agencies’ views
of SAS than was expected.

5.4.4      Data Analysis
First, selected items were reverse coded (see Table 6.1, p. 145 for an overview of
reverse coded items). Thereafter, a t-test of the two SAS samples (Norway and
Sweden) was conducted, which led to the conclusion that the whole SAS sample
could be used in the subsequent analyses. Thereafter, a t-test between the two
samples (SAS and Ducati) was conducted. Since the t-test revealed that the two
samples were significantly different on more than half of the items, they were ana-
lysed separately.



11
 For further information on IATA accreditation, see
http://www.iata.org/ps/certification/accreditation-travel/index.htm

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Normality Analysis
The mean is one of the most commonly used measures of central tendency for
metric scales (Hair et al., 2007, p. 317). But in order to get a better picture of the
sample distributions, histograms of each item, the range, minimum and maximum,
standard deviation, skewness, kurtosis and Kolmogorov-Smirnov’s Z test of nor-
mality were also looked at. Since seven point Likert-type scales were used, standard
deviations between 1.0 and 3.0 were considered medium (cf. Hair et al., 2007, p.
320). Skewness values larger than + 1 and kurtosis values larger than + 3 were de-
fined as indicators of a non-normal distribution (cf. Hair et al., 2007, p. 321). This
information is provided for each sample separately (see Table 6.1, p. 145).

Missing Data
Little’s MCAR test was used to test whether data were missing completely at ran-
dom (MCAR) (Little, 1988). The required minimum of p > .05 for data to be
MCAR (cf. Hair, Black, Babin, Anderson & Tatham, 2006, p. 68), was used as the
reference value. The Expectation-Maximization (EM) method (cf. de Vaus, 2002,
p. 69) was used to substitute missing data.

Measure Validation
As previously stated, several new scales were developed. Since exploratory factor
analysis is useful as a preliminary analysis when the theory about the relations of in-
dicators is not detailed enough (Gerbing & Anderson, 1988), exploratory factor
analyses, using principal components with Varimax rotation, were conducted (see
Chapter 6.4). Since a sample size of 50 is needed to conduct a factor analysis (cf.
Hair, Anderson, Tatham & Black, 1998, p. 98), the exploratory factor analysis was
conducted only with the SAS data.

In order to decide the number of factors that should be extracted in a factor analy-
sis, a combination of several techniques is usually used (Chatterjee, Jamieson &
Wiseman, 1991). The latent root criterion, i.e. considering only factors with eigen-
values greater than one, is the most commonly used technique (Hair et al., 1998, p.
103). However, when the number of items is below 20, the latent root criterion
might lead to too few factors (ibid.). An additional technique is therefore to iden-
tify the amount of variance explained, i.e. the factors extracted should account for
some appreciable percentage of the total variability in the original data (Chatterjee
et al., 1991). In the social sciences, solutions that explain 60% of the total variance
are usually considered satisfactory (Hair et al., 1998). This procedure was used as a
starting point in each exploratory factor analysis, besides for the level of channel con-
flict items (see Chapter 6.4.2 for a further discussion).

Other criteria also needed to be met. The Kaiser-Meyer-Olkin (KMO) measure of
sampling adequacy should exceed the required value of .50 for a factor analysis,
Bartlett’s test of sphericity should be significant, the communalities should be above the

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recommended .50, and the measure of sampling adequacy (MSA) should be accept-
able, i.e. .50 or above (Hair et al., 1998). In all cases, KMO was between .84 and
.91, i.e. values considered “meritorious” or “marvellous” (cf. de Vaus, 2002, p.
137), and MSA was at least “middling”, i.e. .70 or above, and in several cases
“meritorious”, i.e. .80 or above (cf. Hair et al., 1998, p. 99).

After an exploratory factor analysis has been conducted, a confirmatory factor
analysis is needed to evaluate and likely refine the scales with regards to unidimen-
sionality (Gerbing & Anderson, 1988). Scales with more than three retained indi-
cators were therefore submitted to a confirmatory factor analysis. This procedure
led to the identification of two scales that were multidimensional (see Chapter
6.4.4).

Hypothesis Testing
The original intention was to use Structural Equation Modelling (SEM) with
AMOS 5.0 software to test the research model, using data from both cases. How-
ever, since a minimum of 5 observations per estimated parameter is needed (Hair
et al. 1998, p. 604), the research model requires a sample size of at least 115 re-
sponses, even if summated scales are used. Accordingly, only the SAS data could be
analysed with SEM. Due to the limited sample size for Ducati (n = 43), multiple
regression analysis was used to test the hypotheses for this case.

Even so, it was judged important to be able to compare the main hypothesized re-
lationships, i.e. the relationships including the overall level of channel conflict, and
the overall performance, across the two samples. Accordingly, for the Ducati data,
the three level of channel conflict scales were summated and averaged, into one
scale measuring overall level of channel conflict. This procedure was also followed
for the two performance scales, because comparability of the two samples was con-
sidered more important than the dimensionality of the scales. As Iacobucci (2001,
pp. 61-62) states, “unidimensionality itself is sometimes less important than other
theoretical goals that may motivate the use of multifaceted scales”.

First, SEM was used to test the outcomes part of the research model. The model fit
the data very well. However, when testing the whole research model, including
the antecedents, the fit statistics suggested a poor fit to the data. Anderson and
Gerbing (1988) state that research models often need some kind of re-specification.
Byrne (2001, p. 88) notes that AMOS produces two types of information that can
be useful in detecting model misspecification, the standardised residual values and
the modification indices. When standardized residual values exceed 2.58, misfit is
possible. But since the residuals are not independent of one another, one should
not attempt to test them. Because the modification indices reflect the extent to
which the model is appropriately described (ibid.), the magnitude of the standard-
ized residuals was used to control for possible model misspecification, whereas the

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modification indices were used to re-specify the model. Since it is important that
re-specifications are based on theoretical and content considerations, and not just
statistical ones (Anderson & Gerbing, 1988), all re-specifications were justified by
theory or content. As a result, two post hoc hypotheses were added.

The re-specified research model was used to test the hypotheses in both cases, i.e.
by SEM for SAS and by multiple regression for Ducati. In order to assess the
strength of association between variables, the reference values provided by de Vaus
(2002, p. 272) were used (see Table 5.2).
Table 5.2 Strength of Association between Variables (adapted from de Vaus,
2002, p. 272)
 Coefficient Range      Strength of Association
 0.01 - 0.09            Trivial
 0.10 – 0.29            Low to moderate
 0.30 – 0.49            Moderate to substantial
 0.50 – 0.69            Substantial to very strong
 0.70 – 0.89            Very strong
 0.90 – 0.99            Near perfect

AMOS, as well as SPSS, reports only the results of two-tailed significance tests.
Since the direction of all hypotheses was specified, the significance values were
converted to one-tailed. The AMOS output provides the critical ratio (C.R.),
which is the same as a t-value (cf. Byrne, 2001, p. 241 and Hair et al., 1998, p.
206). To be consistent, only t-values were used in this research.

Test of Model Fit
A number of indices exist to test how well data fit a model. These can be classified
into three different types: (1) absolute fit measures, (2) incremental fit measures, and (3)
parsimonious fit measures (Hair et al., 1998). Researchers are advised to employ one
or more of each type to test the model. Absolute fit measures assess the degree to
which the overall model predicts the observed covariance or correlation matrix,
whereas incremental fit measures check that the proposed model exceeds the null
model. Finally, parsimonious fit measures assess whether a good fit has been
achieved by over-fitting the data with too many parameters (ibid.). Absolute fit
measures included in this research were the likelihood-ratio chi-square ( 2), including
degrees of freedom (df) and significance value (p), the goodness-of-fit index (GFI), and the
root mean square of approximation (RMSEA). The incremental fit measure was the
comparative fit index (CFI), and the parsimonious fit measure was the normed chi-
square value ( 2/df).

Other commonly used indices include the adjusted good-ness-of-fit index (AGFI) and
the normed fit index (NFI), but since they may underestimate the fit for small sam-


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ples (cf. Byrne, 2001, p. 82-83) they were deemed inappropriate. On the contrary,
CFI and RMSEA are among the measures least affected by sample size (ibid).

There is no threshold value for GFI, but most researchers suggest that .90 or
greater should be used to indicate good fit (Hair et al., 2006); 2/df should be
greater than 1.0 and smaller than 3.0; p should be non-significant at least at the >
.05 level (Hair et al., 1998); CFI should be .90 or higher (Byrne, 2001); and
RMSEA should preferably be .08 or less, with an upper threshold of .10 (Hair et
al., 2006). The reference values used in this research are summarized in Table 5.3.
Table 5.3 Reference Values to Test Model Fit
 Index                                  Term         Type of Measure       Reference value
 Normed chi-square value                 2
                                          /df        Parsimonious fit      1<x<3
 Goodness-of-fit index                  GFI          Absolute fit          x > .90
 Comparative fit index                  CFI          Incremental fit       x > .90
 Root mean square of approximation      RMSEA        Absolute fit          x < .10

5.4.5      Issues of Validity and Reliability
The research design is the logical sequence that connects the research questions,
the empirical data, and the conclusions (Yin, 2003). Therefore, the case study in-
vestigator must maximise the quality of the design, i.e. the validity and reliability
(ibid.). Validity refers to how well a specific research method measures what it is
supposed to measure (Chisnall, 1997). There are three kinds of measurement valid-
ity: content validity, construct validity, and criterion validity (Hair et al., 2007). Reliabil-
ity, on the other hand, refers to how consistent the measures are (Potter, 1996).

Content or Face Validity
Content or face validity refers to whether the scale measures what it is supposed to
measure (Hair et al., 2007). The extended literature review, along with the first
study, provides a good understanding of the constructs to be included in this re-
search. This understanding provided the basis for the operational definitions that
were developed for each construct (see Section 5.4.2), which in turn were used as
benchmarks during scale development. As described in Section 5.4.2, several items
used by previous researchers were judged to be double-barrelled, and were there-
fore split into separate items. The pre-test indicated that the content validity of the
scales was satisfactory. The exploratory factor analysis revealed that one item,
which originally was thought to measure goal incompatibility, instead loaded on
the domain dissensus factor. Since the item conformed to the definition of domain
dissensus, it was concluded that face validity was further increased by retaining the
item (see Chapter 6.4.1 for a further discussion).




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Construct Validity and Common Method Variance
Construct validity refers to establishing correct operational measures for the concepts
being studied (Yin, 2003). There are two kinds of construct validity: convergent va-
lidity and discriminant validity (Hair et al., 2007). Convergent validity refers to the
extent to which one construct is positively correlated with other measures of the
same construct, whereas discriminant validity refers to the extent to which the
construct does not correlate with other measures that are different from it. Common
method variance, on the other hand, refers to bias caused by the measurement
method rather than by the measures themselves (Podsakoff, MacKenzie, Lee &
Podsakoff, 2003).

First, Harman’s single-factor test (Podsakoff & Organ, 1986) was applied to the
SAS sample to test for discriminant validity and common method vari-
ance/common method bias (see Table 6.7, p. 158). That is, all items were entered
into an exploratory factor analysis. Since the sample size was above 150 but below
200, factor loadings below .45 were suppressed (cf. Hair et al., 1998, p. 112). All
cross-loadings were below the suppressed value of .45, which indicated that the
discriminant validity of the scales was satisfactory. With this technique, it is assumed
that common method variance is present if one factor in the un-rotated solution
accounts for the majority of the total variance (Podsakoff & Organ, 1986). Total
variance explained was almost 69%. The largest factor in the un-rotated solution
explained just above 31% of the total variance. (In the rotated solution the largest
factor explained just above 18% of the total variance). It was therefore concluded
that the common method variance was low.

Second, as suggested by de Vaus (2002, p. 30), a bivariate Pearson correlation ma-
trix was created to test both discriminant and convergent validity (see Table 6.8, p.
159). In all cases, the correlations were highest among items intended to measure
the same construct. In all cases, correlations were lower (or at least not higher)
with items that were intended to measure other constructs. Hence, both discriminant
and convergent validity were judged to be satisfactory.

Criterion Validity
Criterion validity refers to whether a construct performs as expected relative to other
constructs. It can be determined by testing for predictive validity and concurrent valid-
ity (Hair et al., 2007). Since this study was conducted at one point in time, only
concurrent validity is relevant. Concurrent validity refers to theoretically estab-
lished, pre-specified relationships between independent and dependent variables or
constructs. The scores on these constructs should be highly correlated (ibid.). All
relationships between constructs in the research model were based on theory. Ac-
cordingly, concurrent validity was established by the structural equation modelling
of the SAS data and the multiple regression analyses of the Ducati data.


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Reliability
Reliability refers to whether the findings and conclusions would be the same if an-
other researcher conducted the same study12 (Yin, 2003). Reliability also concerns
minimising errors and biases (ibid.). Chronbach’s was calculated for all resulting
scales, for each sample separately (see Chapter 6.4.5). In order to assess the reliabil-
ity of two-item scales, the Spearman Brown formula, i.e. split-half reliability, was
also used (cf. Hulin, 2001). The Spearman Brown calculations changed the reliabil-
ity from .68 to .69 for the Internet-related conflict scale used with SAS; otherwise,
the figures were exactly the same as the Cronbach’s ’s calculated using SPSS.
Most of the scales were highly reliable. However, in the case of SAS, three two-
item scales had reliabilities below the generally agreed upon .70 limit, but well
above the .60 limit for moderate strength of association (cf. Hair et al., 2007, p.
244).

Multicollinearity
In regression analysis, researchers must check for multicollinearity, since highly col-
linear items can distort the results substantially or make them unstable, and thereby
impossible to generalize (Hair et al., 1998, p. 208). Multicollinearity refers to the
correlation among independent variables (Hair et al., 2007). One test for multicol-
linearity is to check the variance inflation factor (VIF) (Hair et al., 1998, p. 208).
Accordingly, VIF values were determined for each multiple regression. Since all
VIF values were rather close to 1.0, and nowhere near the threshold level of 10.0
(cf. Hair et al., 1998), it was concluded that multicollinearity did not adversely af-
fect the regression analyses.

Non-response Bias
If respondents differ substantially from non-repondents, non-response bias occurs
(Armstrong & Overton, 1977). One way to estimate non-response bias is to sample
non-respondents (ibid.). In the case of Ducati, telephone calls were made to non-
respondents in Sweden, Norway, Ireland and Great Britain. As previously stated,
these telephone calls revealed that resellers were extremely busy, since the ques-
tionnaire was distributed during spring, the time of the year when motorcycle
dealers sell the majority of their motorcycles. Hence, resellers said that they had to
prioritize business activities but would respond to the questionnaire if they were
able to find time. Several of them did. Although a t-test can be used to compare
late respondents with early respondents (Armstrong & Overton, 1977), this was
judged as meaningless, because of unknown differences in mail delivery time to,
within and from the various countries, and because the sample size for each coun-
try was so limited.

12
  In order to facilitate replication of this research, a goal of this thesis was to describe how each step
of the research process was carried out. All material related to the case studies is organised, docu-
mented and stored in a manner that enables others to retrieve it efficiently at some later date.

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__________________________________________________________ METHODOLOGY ______

Since the mail delivery time was also different between the Norwegian SAS sample
and the Swedish SAS sample, it was decided to conduct separate non-response bias
analyses for each. Early and late respondents were compared, since early respon-
dents are likely to be more interested in the subject, whereas late respondents are
more likely to be similar to non-respondents (cf. Armstrong & Overton, 1977).
Accordingly, for the Swedish sample it was decided to compare the first quarter re-
spondents (n = 30) with the last quarter respondents (n = 30) by an independent
samples t-test on the retained items (see Table 6.6, p. 155 for an overview of re-
tained items). Of the 25 compared items, only 1 item (x6q4) was found to be sig-
nificantly different between early and late respondents at the p < .05 level; early re-
spondents reported a higher mean (3.73 vs. 2.50, p = .019). For the Norwegian
sample, the total number of usable responses was 47. Given the limited sample size,
it was decided to compare the first 23 responses with the last 24 responses. Again,
only 1 item (x8g) was significantly different between early and late respondents at
the p < .05 level; early respondents reported a lower mean (2.43 vs. 3.29, p =
.026). As only one item out of 25 was significantly different in each sample, and
since that item differed between the samples, it was concluded that non-response
bias did not extensively affect the results.




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______ CHAPTER 6 ______________________________________________________________


6 RESULTS & ANALYSIS
In this chapter, the results of the survey among resellers of Ducati and SAS are analyzed and
presented. Development of the questionnaire and a more detailed explanation of the data
analysis procedures were presented in the previous chapter. First, descriptive statistics are pre-
sented, followed by measure purification and validation. Thereafter, results from the testing of
the research model and the hypotheses are reported for each sample.

6.1 Descriptive Statistics


F      or reasons explained in the methodology chapter, see Chapter 5.4.3, p. 134,
       the Ducati sample was relatively small, i.e. it consisted of 43 cases. Out of
       these, 6 were Swedish, 1 was Norwegian, 3 came from Great Britain, 23
came from the US, 3 were Canadian, and 7 were Italian. Since the sample was
rather small, descriptive statistics for the whole Ducati sample will be presented,
rather than for each country separately (see Table 6.1).

The SAS sample consisted of 123 Swedish cases and 47 Norwegian cases. A t-test
revealed nine out of 48 items with significant differences at the p < .05 level be-
tween SAS Sweden and SAS Norway. Since none of these items was retained after
scale purification (see Table 6.6, p. 155 for an overview of retained items), it was
decided to use the whole SAS sample in the forthcoming analyses. Hence, only de-
scriptive statistics for the whole SAS sample are provided (see Table 6.1).

Since this research consisted of two samples, an independent samples t-test of the
equality of means was conducted between the Ducati and SAS samples, for the
items that were used to measure the constructs included in this research. The t-
values and the two-tailed levels of significance are presented in Table 6.1. Since
Levene’s test was significant at the p < .05 for 9 out of 48 items, and since the
sample sizes were unequal, the reported t-values do not assume equal variances (cf.
Green & Salkind, 2003, p. 155). Non-significant (n.s.) means p > .05.

Sample mean (M), standard deviation (S.D.), skewness and kurtosis values are also
reported in Table 6.1. Items that were substantially skewed, or too peaked, are
highlighted with grey background. For a further discussion of skewness and kurto-
sis, see Section 6.2, p. 148. Items that are marked with ® were reverse coded. Note
that the original items were not necessarily worded in exactly the same way as in
the tables. For the original items, see Appendix 4.




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______________________________________________________ RESULTS & ANALYSIS ______

Table 6.1 Descriptive Statistics – Ducati and SAS*
 Scale/Items                             Sample     n    M M   M      S.D.      t     Skew    Kur-
                                                         i a                 (p,      ness    tosis
                                                         n x                 2-
                                                                             tail)
 Inadequate Communication:
 x3a Producer has a good                 Ducati     43   2 7   3.86   1.49              .70    -.20
                                                                             -1.56
     understanding of the type of
                                         SAS       169   1 7   4.26   1.53   (n.s.)    -.00    -.55
     information reseller needs ®
 x3b Producer has a good                 Ducati     43   2 7   3.98   1.58              .57    -.62
                                                                             -1.69
     understanding of the frequency
                                         SAS       169   1 7   4.43   1.55   (n.s.)    -.09    -.58
     of information reseller needs ®
 x3c Producer keeps reseller well        Ducati     43   1 7   3.67   1.81              .39    -.66
                                                                             -2.73
     informed about relevant events
                                         SAS       169   1 7   4.50   1.63    .008     -.07    -.99
     and changes ®
 x3d Producer keeps reseller well        Ducati     43   1 7   3.09   1.62              .91     .54
                                                                             -3.53
     informed about their
                                         SAS       169   1 7   4.07   1.66    .001     -.03    -.79
     products ®
 x3e Producer keeps reseller well        Ducati     43   1 7   4.12   1.80              .23    -.96
                                                                             -2.26
     informed about what is going
                                         SAS       170   1 7   4.79   1.49    .028     -.18    -.81
     on in producer’s company ®
 Domain Dissensus:
 x4a Producer has given reseller an      Ducati     42   1 7   3.40   2.15              .43   -1.28
                                                                             -9.03
     exclusive territory for their
                                         SAS       169   1 7   6.53   1.27    .000    -3.02    8.78
     products ®
 x4b Producer’s and reseller’s           Ducati     43   1 7   3.19   1.59              .50    -.14
                                                                             -4.64
     respective duties are well
                                         SAS       169   1 7   4.50   1.91    .000     -.23   -1.05
     defined ®
 x4c Sometimes producer tries to         Ducati     43   1 7   3.02   1.42   -3.12      .63     .11
     take over reseller’s activities     SAS       168   1 7   3.88   2.16    .002      .02   -1.42
 x4d Producer’s direct-to-the-           Ducati     40   1 7   5.05   1.65             -.59    -.11
                                                                             -2.76
     customer Internet sales serves
                                         SAS       170   1 7   5.85   1.69    .008    -1.44     .97
     the same customers as reseller
 x4e Producer’s direct-to-the-           Ducati     40   1 7   5.15   1.73             -.83     .00
                                                                             -1.71
     customer Internet sales markets
                                         SAS       170   1 7   5.67   1.75   (n.s.)   -1.34     .79
     identical products as reseller
 x4f Reseller competes with              Ducati     41   1 7   4.71   2.05             -.50   -1.09
                                                                             -4.39
     producer’s direct-to-the-
                                         SAS       170   1 7   6.21   1.53    .000    -2.19    4.00
     customer Internet sales
 Goal Incompatibility:
 x5a   Reseller’s and producer’s goals   Ducati     43   1 7   3.09   1.58   -7.33      .89     .32
       are compatible ®                  SAS       168   1 7   5.07   1.53    .000     -.45    -.62
 x5b Reseller and producer share         Ducati     43   1 7   3.65   1.66              .52    -.70
                                                                             -6.17
     same view on how to compete
                                         SAS       167   1 7   5.37   1.50    .000     -.73    -.26
     in reseller’s local market ®
 x5c It is feasible for both reseller    Ducati     43   1 7   3.37   1.65              .64    -.55
                                                                             -2.54
     and producer to exceed their
                                         SAS       169   1 7   4.10   1.80    .013      .09    -.95
     respective goals ®
 x5d Reseller disagrees with             Ducati     43   1 7   3.86   1.55              .16   -1.03
                                                                              -.41
     producer on how to achieve
                                         SAS       168   1 7   3.98   1.98   (n.s.)     .04   -1.14
     their respective goals


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______ CHAPTER 6 ______________________________________________________________

Scale/Items                              Sample     n    M M   M      S.D.      t     Skew    Kur-
                                                         i a                 (p,      ness    tosis
                                                         n x                 2-
                                                                             tail)
x5e Producer’s direct-to-the-            Ducati     40   1 7   4.72   1.78             -.53    -.70
                                                                             -2.94
    customer Internet sales comes
                                         SAS       169   1 7   5.64   1.71    .005    -1.28     .79
    at the expense of reseller
Frequency of Channel Conflict:
x6q1 Frequency of disagreements          Ducati     43   1 7   3.07   1.80     .52      .53    -.83
     on information exchanges            SAS       169   1 7   2.91   1.69   (n.s.)     .60    -.50

x6q2 Frequency of disagreements          Ducati     43   1 6   3.00   1.66    -.25      .46    -.91
     on product aspects                  SAS       170   1 7   3.07   1.72   (n.s.)     .46    -.80

x6q3 Frequency of disagreements          Ducati     43   1 7   3.23   1.99   -1.63      .48   -1.22
     on pricing issues                   SAS       169   1 7   3.78   1.90   (n.s.)     .11   -1.04

x6q4 Frequency of disagreements          Ducati     43   1 7   2.77   1.69    -.31      .76    -.29
     on payment terms                    SAS       170   1 7   2.86   1.82   (n.s.)     .75    -.48

x6q5 Frequency of disagreements          Ducati     42   1 7   3.02   1.77   -2.40      .49    -.67
     on commission on sales              SAS       166   1 7   3.81   2.34    .019      .13   -1.51

x6q6 Frequency of disagreements          Ducati     43   1 7   3.72   1.88     .79      .22    -.82
     on producer’s sales organisation    SAS       169   1 7   3.47   1.92   (n.s.)     .26   -1.11
x6q7 Frequency of disagreements on       Ducati     43   1 7   3.33   1.95              .41   -1.12
                                                                               .66
     advertising and other promotional
                                         SAS       167   1 7   3.11   1.79   (n.s.)     .37    -.95
     activities
x6q8 Frequency of disagreements on       Ducati     41   1 7   2.61   1.70   -6.07      .78    -.31
     producer’s Internet sales today     SAS       169   1 7   4.50   2.10    .000     -.35   -1.12
x6q9 Frequency of disagreements          Ducati     41   1 7   2.61   1.84            1.12      .39
                                                                             -6.18
     on producer’s Internet sales
                                         SAS       169   1 7   4.64   2.08    .000     -.42   -1.09
     when channel was introduced
x6q10 Frequency of disagreements         Ducati     43   1 7   3.23   1.88    1.23      .53    -.60
     on reseller’s sales effort          SAS       168   1 7   2.85   1.54    (n.s)     .46    -.48
Intensity of Channel Conflict:
x6r1 Intensity of disagreements on       Ducati     43   1 6   2.58   1.53    -.21      .67    -.61
     information exchanges               SAS       167   1 7   2.63   1.40    (n.s)     .54    -.22

x6r2 Intensity of disagreements on       Ducati     42   1 5   2.57   1.38   -1.35      .43   -1.08
     product aspects                     SAS       167   1 7   2.90   1.60   (n.s.)     .58    -.30

x6r3 Intensity of disagreements on       Ducati     42   1 7   2.93   1.98   -1.25      .84    -.41
     pricing issues                      SAS       168   1 7   3.35   1.75   (n.s.)     .46    -.63

x6r4 Intensity of disagreements on       Ducati     42   1 7   2.52   1.52    -.85    1.05      .76
     payment terms                       SAS       166   1 7   2.75   1.74   (n.s.)     .90    -.00

x6r5 Intensity of disagreements on       Ducati     42   1 7   2.93   1.76   -2.01      .65    -.38
     commission on sales                 SAS       166   1 7   3.58   2.27    .048      .34   -1.37



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______________________________________________________ RESULTS & ANALYSIS ______

 Scale/Items                            Sample     n    M M   M      S.D.      t     Skew   Kur-
                                                        i a                 (p,      ness   tosis
                                                        n x                 2-
                                                                            tail)

 x6r6 Intensity of disagreements on     Ducati     42   1 7   3.33   1.83     .50     .23    -.94
      producer’s sales organisation     SAS       163   1 7   3.18   1.74   (n.s.)    .41    -.74
 x6r7 Intensity of disagreements on     Ducati     42   1 7   3.17   1.85             .40    -.92
                                                                              .95
      advertising and other
                                        SAS       166   1 7   2.87   1.71   (n.s.)    .58    -.64
      promotional activities
 x6r8 Intensity of disagreements on     Ducati     39   1 7   2.59   1.80   -5.12     .88    -.17
      producer’s Internet sales today   SAS       167   1 7   4.28   2.08    .000    -.15   -1.25
 x6r9 Intensity of disagreements on     Ducati     39   1 7   2.72   1.96             .84    -.47
                                                                            -5.50
      producer’s Internet sales when
                                        SAS       167   1 7   4.66   2.12    .000    -.43   -1.18
      channel was introduced
 x6r10 Intensity of disagreements on    Ducati     41   1 7   3.07   1.95    1.08     .74    -.53
       reseller’s sales effort          SAS       165   1 7   2.72   1.49   (n.s.)    .58    -.12
 Relationship Performance:
 x8a   Relationship with producer       Ducati     43   2 7   5.23   1.41    5.50    -.65    -.36
       has been very productive         SAS       169   1 7   3.85   1.68    .000    -.09    -.76
 x8b Time and energy spent on           Ducati     43   2 7   5.30   1.32            -.79     .19
                                                                             6.66
     relationship with producer has
                                        SAS       170   1 7   3.70   1.72    .000     .16    -.86
     been very worthwhile
 x8c Relationship has been very         Ducati     43   2 7   5.23   1.31    6.94    -.59     .20
     effective                          SAS       169   1 7   3.60   1.63    .000     .13    -.75

 x8d Relationship with producer is      Ducati     43   2 7   5.21   1.46    5.69    -.48    -.90
     very rewarding                     SAS       170   1 7   3.74   1.74    .000     .13    -.84
 Sales Performance:
 x8e Return on investment from          Ducati     43   1 6   3.84   1.40            -.19    -.82
                                                                             2.78
     selling producer’s products has
                                        SAS       169   1 7   3.16   1.54    .007     .25    -.60
     exceeded expectations
 x8f Growth in sales over time from     Ducati     43   1 7   3.65   1.46             .21   -.45
                                                                             1.62
     selling producer’s products has
                                        SAS       169   1 7   3.24   1.54   (n.s.)    .19    -.69
     exceeded expectations
 x8g Growth in profit over time from    Ducati     43   1 7   3.56   1.42             .27    -.23
                                                                             2.83
     selling producer’s products has
                                        SAS       166   1 7   2.86   1.52    .006     .55    -.34
     exceeded expectations
 x8h Financial results from selling     Ducati     43   1 7   3.63   1.48             .36    -.03
                                                                             3.21
     producer’s products has
                                        SAS       166   1 7   2.82   1.44    .002     .52    -.32
     exceeded expectations
 Satisfaction:
 x8o Reseller is very satisfied with    SAS        41   1 7   4.02   1.46            -.20    -.13
                                                                              .86
     arrangement of overall channel
                                        Ducati    167   1 7   3.80   1.58   (n.s.)   -.11    -.76
     system
 x8p Reseller is very satisfied with    SAS        39   1 5   2.28   1.15             .62    -.20
                                                                             1.77
     producer’s decision to sell
                                        Ducati    168   1 7   1.90   1.40   (n.s.)   2.01    3.97
     products online




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 Scale/Items                             Sample     n    M M      M     S.D.          t     Skew   Kur-
                                                         i a                       (p,      ness   tosis
                                                         n x                       2-
                                                                                   tail)
 x8q Reseller does not think that        SAS        42   1 7     3.93    1.50               -.32    -.55
                                                                                    1.06
     current channel system needs
                                         Ducati    165   1 7     3.64    1.74      (n.s.)    .16    -.76
     to be changed
 x8r Reseller feels that given the       SAS        42   1 6     3.38    1.56                .01   -1.05
                                                                                     .57
     prerequisites, current channel
                                         Ducati    165   1 7     3.22    1.71      (n.s.)    .45    -.67
     system is the best possible
*Note. For the original wording of items, see Appendix 4.
Items that are marked with ® have been reverse coded.
Reported t-test values and levels of significance do not assume equal variances.
(n.s.) = Non-significant (p > .05).
Grey highlighting refers to substantially skewed or excessively peaked items.

The cases that were selected for this research, i.e. Ducati and SAS, were chosen
because in several respects they were of polar types (see Chapter 5.4.1). In addition,
the above t-tests revealed several significant differences at the p < .05 level. Hence,
it was decided to conduct separate analyses of the Ducati and SAS samples.

6.2 Normality Analyses


A
6.2.1
         ll items were tested individually for normality. As suggested by Hair et al.
         (1998, p. 73), both graphical analyses and statistical tests were conducted to
         assess the degree of departure.

          Normality Analysis - Ducati
The standard deviations for all items were within the range of 1.15 and 2.15 (see
Table 6.1), which is considered medium when using a 7-point Likert-type scale (cf.
Hair et al., 2007, p. 320). Histograms of each item indicated that some possibly di-
verged from normal distribution. Two items, x6q9 and x6r4, had skewness values
just above the +1 limit: 1.12 and 1.05, respectively. However, since kurtosis for
those items was well below + 3, and since Kolmogorov-Smirnov’s Z test of nor-
mality indicated that the distribution was normal, it was concluded that the distri-
bution of the Ducati sample could be considered as normal.

6.2.2      Normality Analysis - SAS
As can be seen in Table 6.1, all items had estimated standard deviations within the
range of 1.27 and 2.34, which is considered medium (cf. Hair et al., 2007, p. 320).
However, histograms of each item indicated that some items diverged from normal
distribution. The Kolmogorov-Smirnov test yielded significance levels below .05
for several items, another possible indication of ‘non-normal’ distributions (cf. de
Vaus, 2002, p. 77). Six items had skewness values smaller than -1 (x4a, x4d, x4e,
x4f, x5e, and x6h), whereas item x8p had a skewness value larger than +1 (see Ta-
ble 6.1). Items x4a, x4f and x8p had kurtosis values exceeding +3. However, since

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______________________________________________________ RESULTS & ANALYSIS ______

non-normality in practice does not have a severe effect on results (cf. de Vaus,
2002, p. 78), it was decided to ignore these non-normal distributions.

6.3 Missing Data


B
ues.
        efore any missing data correction can be implemented, it is necessary to
        understand why data is missing (Hair et al., 1998, p. 48). Hence, the data
        were examined with regards to the extent and randomness of missing val-


6.3.1     Missing Data Analysis - Ducati
As already stated, the Ducati sample consisted of 43 cases, 35 of which had no
missing data at all. The highest number of missing values for any item was 4. Be-
cause of the limited sample size, this means that the three items with four missing
values (x6r8, x6r9 and x8p), had a missing value percentage of 9.3 each. Two of
these items were among the last ten items measuring intensity of conflict, and since
the respondent by then already had responded to ten items measuring the fre-
quency of conflict, this could be an indication of fatigue. However, since Little’s
MCAR test showed a significance level of p = .953, it was concluded that the data
were MCAR. The EM method was used to substitute for missing data.

6.3.2      Missing Data Analysis - SAS
Two Swedish SAS questionnaires/cases were eliminated because the proportion of
missing data in these cases was too high. Of the remaining 168 cases, 142 had no
missing data. Generally, among the items with missing data, only one or two cases
were missing. In fact, there were no items with 5% or more missing values. The
missing patterns (cases with missing values) table revealed no consistent patterns for
missing data. Missing values were computed using the EM method, since no statis-
tically reliable deviations from randomness were found using Little's MCAR test (p
= .439).

6.4 Measure Validation


S       ince several new scales were used to measure the constructs included in this
        research, the scales were exposed to vigorous tests of validity and reliability.
        As a first step, an exploratory factor analysis, i.e. principal component analysis
with varimax rotation, was conducted on the SAS sample. Factor loadings below
the minimum recommended value of .45 for a sample size of at least 150 (cf. Hair
et al., 1998, p. 112) were suppressed. First, the items used to measure the causes of
channel conflict were analysed, followed by the level of channel conflict items, and, fi-
nally, the outcomes items.




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6.4.1     Exploratory Factor Analysis of the Causes of Channel Conflict
Sixteen items (x3a-x5e) were used to measure the causes of channel conflict (see
Table 6.1). Some of these items did not load high enough on any factor, others had
too low communality, and one item formed a factor of its own that did not make
any theoretical sense. Accordingly, 4 items were dropped from further analysis.
Three factors with eigenvalues above 1 were extracted. The Kaiser-Meyer-Olkin
(KMO) measure of sampling adequacy was .84, Bartlett’s Test of Sphericity was sig-
nificant, and the measure of sampling adequacy (MSA) varied between .74 and .89.
Cumulatively, the three factors explained 70.62% of the total variance, and the
communalities for the 12 retained items ranged between .56 and .82 (see Table
6.2).
Table 6.2 Factor Analysis of the Causes of Channel Conflict*
 Item                                                               Factor                 Com-
                                                         Com-       Domain         Goal    munali-
                                                        munica-                             ties
                                                          tion
 x3d Producer keeps reseller well informed about
                                                          .89                                .82
       their products ®
 x3c Producer keeps reseller well informed about
                                                          .86                                .80
       relevant events and changes ®
 x3e Producer keeps reseller well informed about
                                                          .81                                .70
       what is going on in producer’s company ®
 x3b Producer has a good understanding of the
                                                          .81                                .78
       frequency of information reseller needs ®
 x3a Producer has a good understanding of the
                                                          .77                                .74
       type of information needed by reseller ®
 x4d Producer’s direct-to-the-customer Internet
                                                                      .85                    .76
       sales serves the same customers as does reseller
 x4f Reseller competes with producer’s direct-to-
                                                                      .80                    .66
       the-customer Internet sales
 x4e Producer’s direct-to-the-customer Internet
                                                                      .78                    .62
       sales markets identical products as reseller
 x5e Producer’s direct-to-the-customer Internet
                                                                      .72                    .56
       sales comes at the expense of reseller’s channel
 x5c It is feasible for both reseller and producer to
                                                                                    .83      .71
       exceed their respective goals ®
 x5b Reseller and producer share same view on
                                                                                    .76      .71
       how to compete in reseller’s local market ®
 x5a Reseller’s and producer’s goals are
                                                                                    .70      .62
       compatible ®
 Eigenvalue**                                            3.71         2.60          2.16
 % of Variance**                                        30.93        21.69         18.01    70.62
Extraction Method: Principal Component Analysis
Rotation Method: Varimax with Kaiser Normalization
* Rotation converged in 5 iterations.
** Values refer to the rotated solution
Note. Factor loadings below .45 were suppressed (cf. Hair et al., 1998, p. 112).


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______________________________________________________ RESULTS & ANALYSIS ______

The three retained factors were labelled inadequate communication, domain dissensus
and goal incompatibility. However, item x5e, which originally was thought to meas-
ure goal incompatibility, instead loaded on domain dissensus. This seems logical: if
the producer’s direct-to-the-customer sales come at the expense of the reseller
channel, the parties claims are incongruent in terms of population to be served and
the services to be rendered/functions to be performed, thereby leading to domain
dissensus (see Chapter 4.1.2 for the definition of domain dissensus). It was therefore
concluded that the item should be retained in the domain dissensus factor, because
it conformed to the definition of that factor and increased its face validity.

6.4.2      Exploratory Factor Analysis of the Level of Channel Conflict
The original intention was to use both frequency and intensity to represent the
level of channel conflict. However, although several different combinations of
these measures were investigated, none yielded attractive properties for use in
Structural Equation Modelling (SEM). In a study of, among other constructs, con-
flict, Lee (2001) used a Partial Least Square (PLS) Latent Path Model to estimate
the path diagrams of his model. Since the PLS approach is in certain respects simi-
lar to SEM, it was decided to follow the example of Lee (2001), who used only fre-
quency to capture the level of channel conflict. Nine items were used to measure
the present frequency of conflict. These items all loaded on one factor (see Table
6.3).
Table 6.3 Factor Analysis of the Level of Channel Conflict*
                                                                           Level of   Commu-
                                                                           Channel     nalities
                                                                           Conflict
 x6q1 Frequency of disagreements on information exchanges                     .77        .60
 x6q2 Frequency of disagreements on product aspects                          .77         .60
 x6q7 Frequency of disagreements on advertising, etc.                         .77        .59
 x6q6 Frequency of disagreements on producer’s sales organisation            .75         .57
 x6q3 Frequency of disagreements on pricing issues                            .70        .49
 x6q8 Frequency of disagreements on producer’s Internet sales today          .68         .47
 x6q4 Frequency of disagreements on payment terms                             .68        .46
 x6q10 Frequency of disagreements on reseller’s sales effort                 .67         .44
 x6q5 Frequency of disagreements on commission on sales                       .63        .40
 Eigenvalue                                                                  4.61
 % of Variance                                                              51.23       51.23
Extraction Method: Principal Component Analysis
* The solution cannot be rotated.
Note. Factor loadings below .45 were suppressed (cf. Hair et al., 1998, p. 112).

KMO was .87, Bartlett’s Test of Sphericity was significant, and the MSA ranged from
.84 to .93. However, the factor only explained 51.23% of the total variance (see
Table 6.3). Nevertheless, since Brown and Day (1981), in their comparison of dif-
ferent measures of conflict in marketing channels, reported that their highest vari-


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______ CHAPTER 6 ______________________________________________________________

ance was 42.8% (for their frequency measure), it was decided to proceed with the
one factor solution.

6.4.3     Exploratory Factor Analysis of Outcomes
The 12 items representing performance and satisfaction (x8a-x8h, and x8o-x8r)
(see Table 6.1) were submitted to exploratory factor analysis. One item was
dropped, since it did not load on the intended factors. Thereafter, two factors with
eigenvalues above 1 were extracted. KMO was .91, Bartlett’s Test of Sphericity was
significant, and MSA ranged between .77 and .95. The communalities for the 11
retained items were between .52 and .82, and together the two factors explained
70.44% of the total variance (see Table 6.4).
Table 6.4 Rotated Component Matrix*
 Item                                                                 Factor            Commu-
                                                               Perform- Satisfac-        nalities
                                                                 ance        tion
 x8f Growth in sales over time from selling producer’s
                                                                   .89                     .82
     products has exceeded reseller’s expectations
 x8g Growth in profit over time from selling producer’s
                                                                   .87                     .78
     products has exceeded reseller’s expectations
 x8e Return on investment from selling producer’s
                                                                   .85                     .75
     products has exceeded reseller’s expectations
 x8h Financial results from selling producer’s products
                                                                   .84                     .74
     exceeded reseller’s expectations
 x8b Time and energy spent on relationship with
                                                                   .82                     .72
     producer has been very worthwhile
 x8d Relationship with producer is very rewarding
                                                                   .82                     .73
 x8a Relationship with producer has been very
                                                                   .80                     .72
     productive
 x8c Relationship has been very effective
                                                                   .80                     .70
 x8r Reseller feels that given the prerequisites the current
                                                                                 .83       .73
       channel system is the best possible
 x8q Reseller does not think that current channel system
                                                                                 .72       .54
       needs to be changed
 x8o Reseller is very satisfied with arrangement of overall
                                                                                 .69       .52
 channel system
 Eigenvalue**                                                      5.72          2.03
 % of Variance**                                                  51.97         18.48     70.44
Extraction Method: Principal Component Analysis
Rotation Method: Varimax with Kaiser Normalization
* Rotation converged in 3 iterations
** Values refer to the rotated solution
Note. Factor loadings below .45 were suppressed (cf. Hair et al., 1998, p. 112).




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______________________________________________________ RESULTS & ANALYSIS ______

6.4.4     Confirmatory Factor Analysis
After an exploratory factor analysis has been conducted, a confirmatory factor
analysis (CFA) is needed to evaluate, and likely refine, the resulting scales with re-
gards to unidimensionality (Gerbing & Anderson, 1988). In the present study, a
CFA was conducted with the SAS data. As it turned out, some of the scales were
multidimensional. For that reason, two indicators in the inadequate communication
scale had to be dropped. Moreover, the eight performance indicators as a first order
construct represented a poor fit to the data. For instance, 2/df was 14.95, GFI was
.611, and RMSEA was .289. Performance was therefore re-specified as a second
order construct, consisting of sales performance and relationship performance (see Figure
6.1). This model fit the data very well: 2/df for the re-specified model was 1.13,
GFI was .983, CFI was .999, and RMSEA was .028 (see Table 6.5).




Figure 6.1 Performance

As a first order construct, the nine level of channel conflict indicators also fit the data
poorly; e.g., GFI was .874 and RMSEA was .133. Instead, level of channel conflict
was found to be a second order construct, consisting of six indicators (see Figure
6.2). That is, level of channel conflict was found to be a three factor model,
formed by indicators related to communication-related conflict issues, monetary-related
conflict issues, and Internet-related conflict issues. This model fit the data very well. The
estimation yielded a 2/df value of 1.74, a GFI of .980, a CFI of .987, and a
RMSEA of .067 (see Table 6.5).




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______ CHAPTER 6 ______________________________________________________________




Figure 6.2 Level of Channel Conflict

The final scale with more than three indicators was domain dissensus. The scale fit
the data well; e.g., GFI was .986 (see Table 6.5). Although the RMSEA for the
domain dissensus scale was slightly high, it was below the generally accepted .10
value (cf. Hair et al., 2006, p. 748). The goodness-of-fit measures for the scales
with more than three indicators are summarized in Table 6.5.
Table 6.5 Fit Indices for Scales
 Scale                         2     df     2
                                                /df    p     GFI    CFI     RMSEA

 Performance                 9.05    8      1.13      .338   .983   .999      .028

 Level of Channel Conflict   10.47   6      1.74      .106   .980   .987      .067

 Domain Dissensus            4.98    2      2.49      .086   .986   .987      .094


6.4.5     Reliability Analyses of Resulting Scales
Reliability analyses were conducted for each of the resulting scales. (For an over-
view of the reliability of each scale, see Table 6.6). The reliabilities for SAS and
Ducati are presented separately, i.e. the columns marked D represent the results for
the Ducati sample, whereas the columns marked S represent SAS. Reliabilities in
brackets are provided just as reference values, i.e. these scales were not used in the
forthcoming analyses (see Section 6.4.7 for a further discussion).




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______________________________________________________ RESULTS & ANALYSIS ______

Table 6.6 Reliability Analysis of Scales
 Scale/Retained Items                                    Corrected      if Item   Cronbach’s
                                                        Item-Total     Deleted        *
                                                        Correlation
                                                         D       S    D      S     D     S

 Inadequate Communication:                                                        .85   .88
 x3c Producer keeps reseller well informed about
                                                        .72    .78    .79   .82
     relevant events and changes ®
 x3d Producer keeps reseller well informed about
                                                        .70    .82    .81   .78
     their products ®
 x3e Producer keeps reseller well informed about
                                                        .75    .71    .76   .88
     what is going on in producer’s company ®
 Domain Dissensus:                                                                .82   .81
 x4d Producer’s direct-to-the-customer Internet sales
                                                        .69    .74    .76   .70
     serves the same customers as the reseller does
 x4e Producer’s direct-to-the-customer Internet sales
                                                        .60    .60    .80   .77
     markets identical products as the reseller does
 x4f Reseller competes with producer’s direct-to-
                                                        .76    .60    .72   .77
     the-customer Internet sales
 x5e Producer’s direct-to-the-customer Internet sales
                                                        .55    .57    .82   .79
     comes at the expense of reseller’s channel
 Goal Incompatibility:                                                            .75   .77
 x5a Reseller’s and producer’s goals are compatible ®
                                                        .58    .59    .65   .69
 x5b Reseller and producer share the same view on
                                                        .53    .66    .71   .62
     how to compete in reseller’s local market ®
 x5c It is feasible for both reseller and producer to
                                                        .61    .56    .62   .75
     exceed their respective goals ®
 Level of Channel Conflict:                                                       .85   (.82)

 x6q3 Frequency of disagreements on pricing issues
                                                        .75    .54    .80   .80
 x6q4 Frequency of disagreements on payment terms
                                                        .63    .56    .83   .80
 x6q5 Frequency of disagreements on commission on
                                                        .72    .54    .81   .81
      sales
 x6q6 Frequency of disagreements on producer’s sales
                                                        .63    .62    .83   .79
      organisation
 x6q7 Frequency of disagreements on advertising and
                                                        .70    .68    .82   .78
      other promotional activities
 x6q8 Frequency of disagreements on producer’s
                                                        .41    .62    .85   .79
      Internet sales today




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______ CHAPTER 6 ______________________________________________________________


Scale/Retained Items                                   Corrected      if Item   Cronbach’s
                                                      Item-Total     Deleted        *
                                                      Correlation
                                                       D       S    D      S     D       S

Level of Communication-Related Conflict:                                        (.79)   .81
x6q6 Frequency of disagreements on producer’s sales
                                                      .66    .68     -     -
     organisation
x6q7 Frequency of disagreements on advertising and
                                                      .66    .68     -     -
     other promotional activities
Level of Monetary-Related Conflict:                                             (.78)   .65
x6q3 Frequency of disagreements on pricing issues
                                                      .64    .48     -     -
x6q4 Frequency of disagreements on payment terms
                                                      .64    .48     -     -

Level of Internet-Related Conflict:                                             (.55)   .69
x6q5 Frequency of disagreements on commission on
                                                      .46    .52     -     -
     sales
x6q8 Frequency of disagreements on producer’s
                                                      .46    .52     -     -
     Internet sales today
Performance:                                                                    .91     (.93)

x8a Relationship with producer has been very
                                                      .73    .80    .89   .92
    productive
x8b Time and energy spent on relationship with
                                                      .71    .80    .90   .92
    producer has been very worthwhile
x8d Relationship with producer is very rewarding
                                                      .72    .81    .89   .92
x8e Return on investment from selling producer’s
                                                      .74    .80    .89   .92
    products has exceeded reseller’s expectations
x8f Growth in sales over time from selling
                                                      .81    .86    .88   .92
    producer’s products has exceeded expectations
x8g Growth in profit over time from selling
                                                      .75    .79    .89   .92
    producer’s products has exceeded expectations
Relationship Performance:                                                       (.92)   .91
x8a Relationship with producer has been very
                                                      .85    .80    .87   .89
    productive
x8b Time and energy spent on relationship with
                                                      .83    .85    .89   .85
    producer has been very worthwhile
x8d Relationship with producer is very rewarding
                                                      .83    .82    .89   .88




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______________________________________________________ RESULTS & ANALYSIS ______


 Scale/Retained Items                                     Corrected         if Item      Cronbach’s
                                                         Item-Total        Deleted           *
                                                         Correlation
                                                          D       S        D       S      D       S

 Sales Performance:                                                                      (.95)   .93
 x8e Return on investment from selling producer’s
                                                         .88       .85    .95     .91
     products has exceeded reseller’s expectations
 x8f Growth in sales over time from selling
                                                         .90       .88    .93     .89
     producer’s products has exceeded expectations
 x8g Growth in profit over time from selling
                                                         .92       .85    .92     .91
     producer’s products has exceeded expectations
 Satisfaction with Channel System:                                                       .74     .66
  x8o Reseller is very satisfied with arrangement of
                                                          .57      .42    .64     .63
       overall channel system
  x8q Reseller does not think that current channel
                                                          .51      .41    .71     .65
       system needs to be changed
  x8r Reseller feels that given the prerequisites the
                                                          .61      .60    .59     .38
       current channel system is the best possible
*For two-item scales, the Spearman Brown formula was applied       to estimate the reliability (cf. Hu-
lin, 2001, p. 55)
Values within brackets refer to scales that were not used in the   forthcoming analyses (see Section
6.4.7 for a further discussion).

As can be seen, most scales were highly reliable. Although for the Ducati sample
the level of Internet-related conflict scale had a split-half reliability of only .55, it
must be noted that this scale was not used in the forthcoming analyses; only the
summarized level of conflict scale, with Cronbach’s of .85, was used for analysing
the Ducati data (see Section 6.4.7 for a further discussion). For the SAS sample, the
satisfaction scale had a split-half reliability of .66, the level of monetary-related
conflict scale had a split-half reliability of .65, and the Internet-related conflict scale
had a split-half reliability of .69. Although the reliability for these three scales is be-
low the generally agreed upon .70 limit, it is well above the .60 limit for moderate
strength of association (cf. Hair et al., 2007, p. 244).

6.4.6      Validity & Common Method Variance
First, an exploratory factor analysis of all resulting scales, Harman’s single-factor test
(Podsakoff & Organ, 1986) was used to estimate discriminant validity and common
method variance. Factor loadings below the minimum recommended value of .45 for
a sample size of at least 150 (cf. Hair et al., 1998, p. 112) were suppressed. KMO
was .86, Bartlett’s Test of Sphericity was significant, and MSA ranged between .71
and .93. Six factors with eigenvalues above one were extracted; together, the six
factors explained 68.67% of the total variance. The communalities varied between .49
and .86, and the largest factor explained just above 18% of the total variance (see
Table 6.7). In the un-rotated solution, the largest factor explained 31.32% of the


                                               157
______ CHAPTER 6 ______________________________________________________________

total variance, and it was therefore concluded that the common method variance
was low (cf. Podsakoff & Organ, 1986). All cross-loadings were below the sup-
pressed value of .45, which indicates that the discriminant validity of the scales was
satisfactory.
Table 6.7 Factor Analysis of Retained Indicators - SAS*
 Indicator/Scale        Per-     Level of    Domain      Com-        Goal      Satisfac-   Com-
                       form-     Channel                munica-                  tion      munali-
                        ance     Conflict                 tion                              ties
 x8f PERF                .89                                                                 .86
 x8g PERF                .88                                                                 .82
 x8e PERF                .87                                                                 .81
 x8b PERF                .73                                                                 .73
 x8a PERF                .72                                                                 .72
 x8d PERF                .72                                                                 .76
 x6q7 CONFL                          .80                                                     .68
 x6q6 CONFL                          .76                                                     .64
 x6q4 CONFL                          .69                                                     .56
 x6q8 CONFL                          .68                                                     .66
 x6q3 CONFL                          .68                                                     .55
 x6q5 CONFL                          .65                                                     .49
 x4d DOMAIN                                   .85                                            .76
 x4f DOMAIN                                   .79                                            .67
 x4e DOMAIN                                   .75                                            .59
 x5e DOMAIN                                   .73                                            .57
 x3e COMM                                                 .83                                .78
 x3d COMM                                                 .83                                .84
 x3c COMM                                                 .77                                .79
 x5c GOAL                                                              .78                   .74
 x5b GOAL                                                              .70                   .71
 x5a GOAL                                                              .63                   .60
 x8r SATISF                                                                         .79      .70
 x8q SATISF                                                                         .76      .62
 x8o SATISF                                                                         .58      .52
 Eigenvalue**            4.55        3.27    2.79        2.56         2.12         1.88
 % of Variance**        18.19       13.09   11.17       10.24         8.46         7.51     68.67
Extraction Method: Principal Component Analysis
Rotation Method: Varimax with Kaiser Normalization
* Rotation converged in 6 iterations
** Values refer to the rotated solution
Note. Factor loadings below .45 were suppressed (cf. Hair et al., 1998, p. 112).

A correlation matrix of the retained items provided further evidence of discrimi-
nant validity, as well as convergent validity (see Table 6.8). As can be seen, all items
loaded primarily on the construct they were designated to measure. It was there-
fore concluded that both discriminant validity and convergent validity were satisfactory.




                                                158
             x6q3    x6q4     x6q5     x6q6    x6q7     x6q8   x8a     x8b     x8d     x8e     x8f     x8g     x8o     x8q     x8r
      x3c                                                                                                                            x3c
      x3d                                                                                                                            x3d
      x3e                                                                                                                            x3e
      x4d                                                                                                                            x4d
      x4e                                                                                                                            x4e
      x4f                                                                                                                            x4f
      x5e                                                                                                                            x5e
      x5a                                                                                                                            x5a
      x5b                                                                                                                            x5b
      x5c                                                                                                                            x5c
      x6q3    1                                                                                                                      x6q3
      x6q4   .48**     1                                                                                                             x6q4




159
      x6q5   .38**   .41**      1                                                                                                    x6q5
      x6q6   .42**   .41**    .33**     1                                                                                            x6q6
      x6q7   .42**   .44**    .38**    .68**     1                                                                                   x6q7
      x6q8   .36**   .35**    .52**    .46**   .56**     1                                                                           x6q8
      x8a    -.17*   -.24**   -.27**   -.16*   -.18*    -.14    1                                                                    x8a
      x8b    -.10    -.18*    -.17*    -.11    -.16*    -.12   .78**    1                                                            x8b
      x8d    -.12    -.26**   -.18*    -.12    -.24**   -.14   .74**   .80**    1                                                    x8d
      x8e    -.06    -.15*    -.18*    -.17*    -.15    -.10   .62**   .62**   .65**    1                                            x8e
      x8f    -.04    -.16*    -.17*    -.13     -.13    -.12   .70**   .67**   .70**   .84**    1                                    x8f
      x8g    -.03     -.13    -.24**   -.14     -.08    -.10   .64**   .60**   .63**   .80**   .83**    1                            x8g
                                                                                                                                            Table 6.8 Discriminant and Convergent Validity - Bivariate Correlations




      x8o    -.12    -.20*     -.12    -.08    -.15*    -.10   .36**   .30**   .36**   .33**   .31**   .25**    1                    x8o
      x8q    -.06     -.12     -.01     .02     .00     .07    .26**   .24**   .25**   .22**   .23**   .21**   .23**    1            x8q
                                                                                                                                                                                                                      ______________________________________________________ RESULTS & ANALYSIS ______




      x8r    -.15    -.20**    -.13    -.04     -.01    -.10   .34**   .26**   .32**   .31**   .36**   .31**   .48**   .46**    1    x8r
                                                                                                                                                                       x3c      x3d      x3e     x4d     x4e     x4f      x5e      x5a      x5b      x5c




      6.4.7
                                                                                                                                                               x3c      1                                                                                    x3c
                                                                                                                                                               x3d    .78**      1                                                                           x3d
                                                                                                                                                               x3e    .64**    .70**      1                                                                  x3e
                                                                                                                                                               x4d     .06      .10      .16*     1                                                          x4d
                                                                                                                                                               x4e     -.00     .03      .09     .63**    1                                                  x4e
                                                                                                                                                               x4f     .03      .08     .26**    .55**   .49**    1                                          x4f
                                                                                                                                                               x5e     .06      .09      .13     .58**   .39**   .46**     1                                 x5e
                                                                                                                                                               x5a    .42**    .40**    .38**    .18*     .07     .15     .12       1                        x5a
                                                                                                                                                               x5b    .45**    .42**    .38**    .24**    .14     .14    .22**    .60**      1               x5b
                                                                                                                                                               x5c    .33**    .26**    .24**    .21**   .17*     .04    .25**    .46**    .54**      1      x5c
                                                                                                                                                               x6q3   .27**    .28**    .25**     .11     .10     .08     .07      .08      .14      .18*    x6q3




                Summated Averaged Scales
                                                                                                                                                               x6q4   .30**    .25**     .16*     .03     .13     .07     .07      .19*    .25**     .18*    x6q4




160
                                                                                                                                                               x6q5    .17*     .19*     .13     .18*     .13     .12     .19*     .14     .26**     .18*    x6q5




                                                                                              * Correlation is significant at the p < .05 level (2-tailed)
                                                                                                                                                               x6q6   .27**    .23**     .15*    .20**    .08     .12     .13      .18*    .21**     .09     x6q6




                                                                                              ** Correlation is significant at the p < .001 level (2-tailed)
                                                                                                                                                               x6q7   .27**    .26**     .17*     .14     .14     .05     .06      .19*    .30**     .18*    x6q7
                                                                                                                                                               x6q8    .17*     .16*     .19*    .40**   .32**   .32**   .30**    .21**    -.49**   .21**    x6q8
                                                                                                                                                               x8a    -.50**   -.53**   -.38**   -.14    -.12    -.04     -.15    -.44**   -.46**   -.43**   x8a
                                                                                                                                                               x8b    -.44**   -.51**   -.35**   -.08    -.07    -.02     -.09    -.50**   -.49**   -.47**   x8b
                                                                                                                                                               x8d    -.52**   -.56**   -.40**   -.10    -.08    -.06     -.06    -.48**   -.42**   -.48**   x8d
                                                                                                                                                               x8e    -.40**   -.35**   -.36**   -.19*   -.09    -.12    -.18*    -.42**   -.46**   -.31**   x8e
                                                                                                                                                               x8f    -.41**   -.38**   -.33**   -.19*   -.12    -.11    -.22**   -.44**   -.42**   -.42**   x8f
                                                                                                                                                               x8g    -.42**   -.34**   -.33**   -.18*   -.07    -.20*   -.18*    -.40**   -.41**   -.34**   x8g
                                                                                                                                                               x8o    -.34**   -.39**   -.32**   -.14    -.15    -.14    -.19*    -.20*    -.34**   -.32**   x8o
                                                                                                                                                               x8q     -.11     -.15     -.11     .02     .05    -.05     -.00    -.16*     -.03    -.21**   x8q
                                                                                                                                                               x8r    -.30**   -.29**   -.25**   -.10    -.08    -.11     -.12    -.21*    -.26**   -.24**   x8r
                                                                                                                                                                                                                                                                    ______ CHAPTER 6 ______________________________________________________________




      ance (see Table 6.6), were summated and averaged to form the variable
      Given the reliability and validity of the scales, corresponding indicators (see Table

      summated scales are presented separately for each sample (see Table 6.9 and Table

      order construct labelled as level of channel conflict (see Table 6.6), were summated

      ance scale, which were related to relationship performance as well as sales perform-
      6.6) were summated and averaged. The means and standard deviations for the



      and averaged to form the variable CONF_FRE. Also, the items on the perform-
      6.10). For Ducati, the six items that formed the three dimensions of the second
______________________________________________________ RESULTS & ANALYSIS ______

PERF_SUM. For a justification of the use of summated scales that are multidimen-
sional, see Chapter 5.4.4, p. 138.
Table 6.9 Summated Averaged Scales - SAS
 Scale/Construct                               Label     n       M        S.D.
 Goal Incompatibility                    (GOAL_SUM)     168     4.83      1.34
 Domain Dissensus                        (DOM_SUM)      168     5.84      1.34
 Inadequate Communication                (COMM_SUM)     168     4.45      1.44
 Communication-Related Conflict Issues   (CF_C_SUM)     168     3.29      1.70
 Monetary-Related Conflict Issues        (CF_M_SUM)     168     3.33      1.60
 Internet-Related Conflict Issues        (CF_I_SUM)     168     4.15      1.93
 Sales Performance                       (PERS_SUM)     168     3.08      1.44
 Relationship Performance                (PERR_SUM)     168     3.73      1.56
 Satisfaction with Channel System        (SAT_SUM)      168     3.53      1.29

Table 6.10 Summated Averaged Scales - Ducati
 Scale/Construct                               Label     n       M        S.D.
 Goal Incompatibility                    (GOAL_SUM)     43      3.37      1.33
 Domain Dissensus                        (DOM_SUM)      43      4.87      1.46
 Inadequate Communication                (COMM_SUM)     43      3.63      1.53
 Level of Channel Conflict               (CONF_FRE)     43      3.11      1.38
 Performance                             (PERF_SUM)     43      4.46      1.17
 Satisfaction with Channel System        (SAT_SUM)      43      3.75      1.22

6.5 Hypothesis Testing


T
6.5.1
          he hypothesis testing of the SAS data was conducted by Structural Equa-
         tion Modelling and is presented in the following section. The hypothesis
         testing of the Ducati-data is presented in Section 6.5.3.

          Structural Equation Modelling - SAS
First, the outcomes part of the research model was tested (see Figure 6.3). The
model fit the data very well. The 2 was 9.94 with 7 degrees of freedom, p was
.192, GFI was .981, CFI was .990, and RMSEA was .050 (see Table 6.16, p. 166).
The coefficients of determination (R2) are summarized in Table 6.11.
Table 6.11 R2-Correlations for Outcomes Part of Research Model
 Construct                 R2
 PERF                      .09
 SAT_SUM                   .21
 CF_I_SUM                  .51
 CF_M_SUM                  .51
 CF_C_SUM                  .56
 PERS_SUM                  .66
 PERR_SUM                  .84




                                         161
______ CHAPTER 6 ______________________________________________________________




Figure 6.3 Outcomes Part of Research Model
When the estimates were reviewed, it was found that, with one exception, the re-
lationships were both reasonable and statistically significant (see Table 6.12). In
other words, the relationship between conflict and satisfaction was not statistically
significant. The highest standardized residual covariance, between satisfaction and
monetary-related conflict issues, was -1.25, which means that no statistically sig-
nificant discrepancy in covariance was found between the constructs (cf. Byrne,
2001, p. 89).
Table 6.12 Maximum Likelihood Estimates - Outcomes Part of Research Model
 Independent        Dependent     Unstandard-    S.E.      t         p     Standard-
   Variable          Variable        ized                           1-        ized
                                   Loadings                       tailed   Loadings
 CONFLICT         PERF                   -0.38   .12      -3.10    .001          -.30
 PERF             PERR_SUM                1.00                                    .92
 PERF             PERS_SUM                0.82   .10       7.76    .000           .81
 PERF             SAT_SUM                 0.41   .08       5.07    .000           .45
 CONFLICT         CF_C_SUM                1.12   .16       7.09    .000           .75
 CONFLICT         CF_M_SUM                1.00                                    .71
 CONFLICT         SAT_SUM                -0.03   .10      -0.29    .386          -.02
 CONFLICT         CF_I_SUM                1.21   .17       7.05    .000           .71

Nevertheless, when the whole research model was tested, including the antece-
dents (see Figure 6.4), the statistics suggested a poor fit to the data. For instance,
GFI was .873, CFI was .795 and RMSEA was .166 (see Table 6.16, p. 166).

                                         162
______________________________________________________ RESULTS & ANALYSIS ______




Figure 6.4 Research Model
Several standardized residuals with values exceeding 2.58 were found. The modifi-
cation indices indicated a substantial drop in the overall 2 value if a relationship
between inadequate communication and performance was added, and between
goal incompatibility and performance (see Table 6.13).
Table 6.13 Modification Indices and Parameter Change Statistics
 Independent Variable        Dependent Variable                 M.I.   Par. Change
 COMM_SUM                    PERF                              30.98           -.43
 GOAL_SUM                    PERF                              41.77           -.54
 COMM_SUM                    CF_I_SUM                           5.06           -.19
 DOM_SUM                     CF_I_SUM                           7.06            .24
 PERS_SUM                    CF_M_SUM                           4.84            .15
 SAT_SUM                     CF_C_SUM                           5.42            .19
 COMM_SUM                    PERR_SUM                          11.78           -.18
 GOAL_SUM                    PERR_SUM                          12.53           -.20




                                        163
______ CHAPTER 6 ______________________________________________________________

In a recent study, Kim, Cavusgil and Calantone (2006) found that high quality in-
formation exchange had a positive impact on companies’ performance. They con-
tend that “information exchange seems to be a cornerstone for other channel capa-
bilities and market performance.” (p. 51). Since high-quality information exchange
was found to have an impact on performance, it seems plausible that inadequate
communication also would impact performance. Accordingly, the relationship be-
tween inadequate communication and performance was included in the re-
specified research model (see Figure 6.5). Hence, the following ad hoc hypothesis is
proposed:

 H10: The level of inadequate communication among multiple marketing channels is
 negatively associated with the level of perceived performance.

This quote, from SAS’ 2003 annual report, seems to support the inclusion of a re-
lationship between goal incompatibility and performance, since it clearly indicates
the desire from SAS’ side to dis-intermediate:

“Scandinavian Airlines’ goal is to achieve 40% of sales via the Internet. For a variety of rea-
sons, a majority of big customers want distribution to continue via travel agencies. This limits
the potential for Scandinavian Airlines’ share of Internet sales.” (SAS, 2004, p. 17)

In fact, SAS’ Internet sales seem to have affected travel agencies. For instance, in
2004, 21% of SAS Sveriges’ tickets were booked via the Internet, whereas 65%
were booked via travel agencies (SAS, 2005, p. 38). In 2006, the share of Internet
bookings increased to 31%, whereas the share of tickets booked via travel agencies
decreased to 62% (SAS, 2007, p. 38). The decrease in bookings via travel agencies
would reasonably have impacted travel agencies’ performance. Hence, it seems
logical to also include a relationship between goal incompatibility and performance
in the re-specified research model (see Figure 6.5). Accordingly, the following ad
hoc hypothesis is proposed:


 H11: The level of goal incompatibility among multiple marketing channels is negatively
 associated with the level of perceived performance.


The estimation of the re-specified research model yielded a 2/df value of 1.67, a
GFI of .957, a CFI of .973, and a RMSEA of .063, which indicates that the model
fits the data very well.




                                             164
______________________________________________________ RESULTS & ANALYSIS ______




Figure 6.5 Re-Specified Research Model
The R2 values for the re-specified research model are shown in Table 6.14.
Table 6.14 R2 Correlations for the Re-Specified Research Model
 Construct               R2
 GOAL_SUM                .24
 DOM_SUM                 .06
 CONFLICT                .22
 PERF                    .54
 SAT_SUM                 .22
 CF_I_SUM                .54
 CF_M_SUM                .50
 CF_C_SUM                .54
 PERS_SUM                .63
 PERR_SUM                .88

Most of the relationships in the re-specified research model were reasonable and
statistically significant well beyond the p < .05 level. However, a few relationships


                                        165
______ CHAPTER 6 ______________________________________________________________

were not statistically significant, i.e. those between inadequate communication and
domain dissensus, level of channel conflict and performance, and level of channel
conflict and satisfaction with channel system (see Table 6.15).
Table 6.15 Maximum Likelihood Estimates - Re-Specified Model
  Independent         Dependent       Unstan-      S.E.    t          p       Standardized
    Variable           Variable       dardized                     1-tailed    Loadings
                                      Loadings
 COMM_SUM            GOAL_SUM              0.45    .06     7.15       .000             .48
 COMM_SUM            DOM_SUM               0.00    .08     0.05       .482             .00
 GOAL_SUM            DOM_SUM               0.24    .09     2.82       .002             .24
 COMM_SUM            CONFLICT              0.26    .09     2.84       .002             .27
 DOM_SUM             CONFLICT              0.23    .09     2.61       .004             .22
 GOAL_SUM            CONFLICT              0.18    .10     1.78       .038             .17
 CONFLICT            PERF                  0.01    .08     0.16       .438             .01
 COMM_SUM            PERF                 -0.38    .07    -5.26       .000            -.37
 GOAL_SUM            PERF                 -0.52    .08    -6.92       .000            -.48
 CONFLICT            CF_I_SUM              1.00                                        .73
 CONFLICT            CF_M_SUM              0.81    .11     7.28       .000             .71
 CONFLICT            CF_C_SUM              0.88    .12     7.39       .000             .73
 PERF                PERR_SUM              1.00                                        .94
 PERF                SAT_SUM               0.40    .07     5.59       .000             .45
 PERF                PERS_SUM              0.78    .07    11.69       .000             .79
 CONFLICT            SAT_SUM              -0.04    .08    -0.47       .345            -.04

The highest standardized residual covariance (.33) was found between domain dis-
sensus and Internet-related conflict issues. In other words, no statistically significant
discrepancy with regards to covariance was found between the constructs (cf. Hair
et al., 1998, p. 641). Even so, the modification indices suggest the inclusion of a
relationship between domain dissensus and Internet-related channel conflict, al-
though the expected parameter change is very small. Since the goodness-of-fit
measures of the re-specified model indicated a substantially good fit (see Table
6.16), and since there is a risk of over-fitting a model when including additional
parameters (Byrne, 2001, p. 93), it was decided to stop fitting the model.
Table 6.16 Fit Indices for the Tested Models
 Model                  2       df       2
                                             /df     p      GFI        CFI       RMSEA
 Outcomes Part of
                       9.94     7        1.42      .192     .981       .990        .050
 Research Model
 Research
                     123.06     22       5.59      .000     .873       .795        .166
 Model
 Re-specified
                      33.33     20       1.67      .031     .957       .973        .063
 Research Model




                                          166
______________________________________________________ RESULTS & ANALYSIS ______

6.5.2    Hypothesis Testing – SAS
The results from the SEM of the re-specified research model were used to test the
hypotheses for SAS (see Table 6.17). The results of hypothesis testing for the
Ducati data are provided in Section 6.5.3.
Table 6.17 Hypothesis Testing – SAS (AMOS Estimates)
 H.    Independent         Dependent     Standard-       t         p        Result
 no.     Variable           Variable        ized                  1-
                                         Loadings               tailed
 1     GOAL_SUM           CONFLICT           .17         1.78    .038        Supported
 2     GOAL_SUM           DOM_SUM            .24         2.82    .002        Supported
 3     DOM_SUM            CONFLICT           .22         2.61    .004        Supported
 4     COMM_SUM           GOAL_SUM           .48         7.15    .000        Supported
 5     COMM_SUM           DOM_SUM            .00         0.05    .482    Not Supported
 6     COMM_SUM           CONFLICT           .27         2.84    .002        Supported
 7     CONFLICT           PERF               .01         0.16    .438    Not Supported
 8     PERF               SAT_SUM            .45         5.59    .000        Supported
 9     CONFLICT           SAT_SUM           -.04        -0.47    .345    Not Supported
 10    COMM_SUM           PERF              -.37        -5.26    .000        Supported
 11    GOAL_SUM           PERF              -.48        -6.92    .000        Supported

Hypothesis one suggested that the level of goal incompatibility among multiple mar-
keting channels is positively associated with the level of channel conflict. There
was statistical support for this relationship at the p < .05 level. There was a low to
moderate, positive relationship between incompatible goals of companies and the
level of channel conflict ( = .17), which means that hypothesis one was sup-
ported.

Hypothesis two posited that the level of goal incompatibility among multiple mar-
keting channels is positively associated with the level of domain dissensus. There
was a low to moderate, positive, statistically significant relationship at the p < .005
level between incompatible goals and domain dissensus ( = .24). Thus, statistical
support was found for hypothesis two.

Hypothesis three suggested that the level of domain dissensus among multiple mar-
keting channels is positively associated with the level of channel conflict. There
was statistical support at the p < .005 level for a low to moderate, positive relation-
ship ( = .22), which means that hypothesis three was supported.

Hypothesis four proposed that inadequate communication among multiple market-
ing channels is positively associated with goal incompatibility. Statistical support
was found for a moderate to substantial, positive relationship at the p < .001 level
( = .48). Thus, hypothesis four was supported.



                                         167
______ CHAPTER 6 ______________________________________________________________

Hypothesis five suggested that inadequate communication among multiple market-
ing channels is positively associated with domain dissensus. However, this relation-
ship was statistically non-significant (p = .482). Thus, hypothesis five was not sup-
ported.

Hypothesis six proposed that inadequate communication among multiple marketing
channels is positively associated with higher levels of channel conflict. Statistical
support at the p < .005 level was found for a low to moderate, positive relationship
( = .27). Thus, hypothesis six was supported.

Hypothesis seven posited that the level of channel conflict among multiple marketing
channels is negatively associated with perceived performance. However, this rela-
tionship was statistically non-significant (p = .438), so statistical support was not
found for a relationship between conflict and performance.

Hypothesis eight suggested that perceived performance is positively associated with
perceived satisfaction with channel system. A moderate to substantial positive, sta-
tistically significant relationship at the p < .001 level was found ( = .45), which
means that hypothesis eight was supported.

Hypothesis nine proposed that the level of channel conflict is negatively associated
with perceived satisfaction with the channel system. The relationship was non-
significant (p = .345). Thus, hypothesis nine was not statistically supported.

Hypothesis ten, one of two ad hoc hypotheses, proposed that the level of inadequate
communication among multiple marketing channels is negatively associated with
the level of perceived performance. Statistical significance at the p < .001 level in-
dicated support for a moderate to substantial, negative relationship ( = -.37),
which means that hypothesis ten was statistically supported.

Hypothesis eleven, the second ad hoc hypothesis, proposed that the level of goal in-
compatibility among multiple marketing channels is negatively associated with the
level of perceived performance. A moderate to substantial, negative, statistically
significant relationship at the p < .001 level was found ( = -.48). Therefore, hy-
pothesis eleven was supported.

6.5.3      Hypothesis Testing - Ducati
The regression analyses of the Ducati sample were conducted with the re-specified
research model as the basis (see Figure 6.5, p. 165). A summary of the hypothesis
testing is presented in Table 6.24, p. 172.




                                         168
______________________________________________________ RESULTS & ANALYSIS ______

Level of Channel Conflict as Dependent Variable
Hypothesis one suggested that the level of goal incompatibility among multiple mar-
keting channels is positively associated with the level of channel conflict; hypothesis
three posited that the level of domain dissensus among multiple marketing channels
is positively associated with the level of channel conflict; hypothesis six proposed
that inadequate communication among multiple marketing channels is positively
associated with higher levels of channel conflict. A standard multiple regression was
performed with level of channel conflict as the dependent variable, and goal in-
compatibility, domain dissensus, and inadequate communication as independent
variables. The regression statistics are presented in Table 6.18.
Table 6.18 Multiple Regression on Level of Channel Conflict
 Model                Unstandardized      Standardized     t        p     VIF     R2
                       Coefficients       Coefficients             1-
                        B       S.E.                             tailed
 1 (Constant)             0.41  0.73              0.56           .288
     GOAL_SUM             0.13  0.16     .13      0.84           .202     1.35
     DOM_SUM              0.21  0.14     .22      1.56           .064     1.19    .33
     COMM_SUM             0.34  0.15     .37      2.26           .015     1.56
Predictors: (Constant), COMM_SUM, DOM_SUM, GOAL_SUM
Dependent Variable: CONF_FRE
F(3, 27) = 6.30, p < .001

R was significantly different from zero, F(3, 27) = 6.30, p < .001, with R2 at .33,
indicating that 33% of the variability in level of channel conflict is predicted by
goal incompatibility, inadequate communication, and domain dissensus. However,
the relationship between goal incompatibility and level of channel conflict was sta-
tistically non-significant (p = .202), as was the relationship between domain dissen-
sus and level of channel conflict (p = .064). Therefore, statistical support was not
found for hypotheses one and three. Nevertheless, a moderate to substantial posi-
tive relationship, statistically significant at the p < .05 level, was found between in-
adequate communication and level of channel conflict ( = .37). Hypothesis six
was therefore statistically supported.

Goal Incompatibility on Domain Dissensus
Hypothesis two posited that the level of goal incompatibility among multiple mar-
keting channels is positively associated with the level of domain dissensus. As can
be seen in Table 6.19, the relationship between goal incompatibility and domain
dissensus was statistically non-significant (p = .135); hence, support was not found
for hypothesis two.




                                          169
______ CHAPTER 6 ______________________________________________________________

Table 6.19 Simple Regression of Goal Incompatibility on Domain Dissensus
 Model                Unstandardized      Standardized        t         p        R2
                       Coefficients       Coefficients               1-tailed
                       B        S.E.
 1 (Constant)             4.24   0.61                       6.91      .000
     GOAL_SUM             0.19   0.17           .17         1.12      .135       .03
Predictors: (Constant), GOAL_SUM
Dependent Variable: DOM_SUM
F(1, 29) = 1.25

Inadequate Communication on Goal Incompatibility
Hypothesis four proposed that inadequate communication among multiple market-
ing channels is positively associated with goal incompatibility. The results of the
regression analysis are presented in Table 6.20. The R2 indicates that 26% of the
variability in level of channel conflict is predicted by inadequate communication.
As statistical support was found for a substantial to very strong, positive relationship
at the p < .001 level ( = .51), hypothesis four was supported.
Table 6.20 Simple Regression of Inadequate Communication on Goal Incomp.
 Model                Unstandardized      Standardized        t         p        R2
                       Coefficients       Coefficients               1-tailed
                       B        S.E.
 1 (Constant)             1.77  0.46                        3.85      .000
     COMM_SUM             0.44  0.12            .51         3.80      .000       .26
Predictors: (Constant), COMM_SUM
Dependent Variable: GOAL_SUM
F(1, 29) = 14.42

Inadequate Communication on Domain Dissensus
Hypothesis five proposed that inadequate communication among multiple marketing
channels is positively associated with domain dissensus. The results of the regres-
sion analysis are presented in Table 6.21.
Table 6.21 Simple Regression of Inadequate Communication on Domain Diss.
 Model                Unstandardized      Standardized        t         p        R2
                       Coefficients       Coefficients               1-tailed
                       B        S.E.
 1 (Constant)             3.51  0.54                        6.51      .000
     COMM_SUM             0.38  0.14            .39         2.75      .004       .16
Predictors: (Constant), COMM_SUM
Dependent Variable: DOM_SUM
F(1, 29) = 7.54



                                          170
______________________________________________________ RESULTS & ANALYSIS ______

The R2 indicates that 16% of the variability in domain dissensus is predicted by in-
adequate communication. Statistical significance at the p < .005 level indicated
support for a moderate to substantial, positive relationship ( = .39), which means
that hypothesis five was statistically supported.

Performance as Dependent Variable
Hypothesis seven posited that the level of channel conflict among multiple marketing
channels is negatively associated with perceived performance; hypothesis ten pro-
posed that the level of inadequate communication among multiple marketing
channels is negatively associated with the level of perceived performance; hypothesis
eleven suggested that the level of goal incompatibility among multiple marketing
channels is negatively associated with the level of perceived performance. Accord-
ingly, a standard multiple regression was performed with performance as the de-
pendent variable and goal incompatibility, inadequate communication and level of
channel conflict as independent variables. The regression statistics are presented in
Table 6.22.
Table 6.22 Multiple Regression on Performance
 Model                Unstandardized    Standardized     t       p     VIF     R2
                       Coefficients     Coefficients            1-
                       B       S.E.                           tailed
 1 (Constant)             6.58  0.46              14.37        .000
     CONF_FRE            -0.02  0.12     -.02     -0.16        .437    1.40
     GOAL_SUM            -0.34  0.13     -.39     -2.69        .005    1.37    .40
     COMM_SUM            -0.25  0.12     -.32     -2.02        .025    1.65
Predictors: (Constant), COMM_SUM, GOAL_SUM, CONF_FRE
Dependent Variable: PERF_SUM
F(3, 27) = 8.66, p < 0.001

R was significantly different from zero, F(3, 27) = 8.66, p < .001, with R2 at .40,
which indicates that 40% of the variability in performance is predicted by goal in-
compatibility, inadequate communication, and level of channel conflict. However,
the relationship between level of channel conflict and performance was statistically
non-significant (p = .437), and therefore statistical support was not found for hy-
pothesis seven. On the other hand, moderate to substantial, negative, statistically
significant relationships at the p < .05 level were found between goal incompatibil-
ity and performance ( = -.39), and between inadequate communication and per-
formance ( = -.32). Hypotheses ten and eleven were therefore statistically sup-
ported.

Satisfaction as Dependent Variable
Hypothesis eight suggested that perceived performance is positively associated with
perceived satisfaction with channel system, whereas hypothesis nine proposed that


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the level of channel conflict is negatively associated with perceived satisfaction with
the channel system. A standard multiple regression was performed with satisfaction
as the dependent variable, and performance and level of channel conflict as inde-
pendent variables. The regression statistics are presented in Table 6.23.
Table 6.23 Multiple Regression on Satisfaction
 Model                 Unstandardized     Standardized          t           p     VIF         R2
                        Coefficients      Coefficients                     1-
                        B        S.E.                                    tailed
 1 (Constant)             1.18    0.83                          1.43      .080
     CONF_FRE             -0.06   0.12     -.07                -0.52      .302    1.12
                                                                                          .38
     PERF_SUM             0.62    0.14      .59                 4.46      .000    1.12
Predictors: (Constant), PERF_SUM, CONF_FRE
Dependent Variable: SAT_SUM
F(2, 28) = 12.18, p < .001

R was significantly different from zero, F(2, 28) = 12.18, p < .001, with R2 at .38,
which indicates that 38% of the variability in satisfaction is predicted by perceived
performance and level of channel conflict. However, the relationship between
level of channel conflict and satisfaction was statistically non-significant (p = .302),
and therefore statistical support was not found for hypothesis nine. On the other
hand, a substantial to very strong, positive, statistically significant relationships at
the p < .001 level was found between perceived performance and satisfaction with
channel system ( = .59). Hypotheses eight was therefore statistically supported.

Summary of Hypothesis Testing - Ducati
The results of hypothesis testing with the Ducati sample are summarized in Table
6.24.
Table 6.24 Hypothesis Testing – Ducati (Regression Analysis)
 H.      Independent         Dependent    Standard-        t              p          Result
 no.       Variable           Variable       ized                      1-tailed
                                          Loadings
 1     GOAL_SUM             CONFLICT          .13         0.84          .202      Not Supported
 2     GOAL_SUM             DOM_SUM           .17         1.12          .135      Not Supported
 3     DOM_SUM              CONFLICT          .22         1.56          .064      Not Supported
 4     COMM_SUM             GOAL_SUM          .51         3.80          .000          Supported
 5     COMM_SUM             DOM_SUM           .39         2.75          .004          Supported
 6     COMM_SUM             CONFLICT          .37         2.26          .015          Supported
 7     CONFLICT             PERF             -.02        -0.16          .437      Not Supported
 8     PERF                 SAT_SUM           .59         4.46          .000          Supported
 9     CONFLICT             SAT_SUM          -.07        -0.52          .302      Not Supported
 10    COMM_SUM             PERF             -.32        -2.02          .025          Supported
 11    GOAL_SUM             PERF             -.39        -2.69          .005          Supported




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________________________________ DISCUSSION, CONCLUSIONS & CONTRIBUTIONS ______


7 DISCUSSION, CONCLUSIONS & CONTRIBUTIONS
In this chapter, the results of the data analyses will be further discussed. Thereafter, the limi-
tations of the study will be presented, followed by theoretical contributions of the study includ-
ing an empirically derived model, managerial implications, and suggestions for future research.

7.1 Discussion


I      n this section the main findings from the analyses of results from the two resel-
       ler surveys, i.e. Ducati and SAS, will be discussed. Recall that the research
       purpose of this thesis is:

 To explore and describe managers’ perspectives on conflict in multiple marketing channels,
                              with a focus on the Internet

Based on a literature review and the first study of this thesis, three research ques-
tions were formulated:
      How can the causes of channel conflict in multiple marketing channels, including the
      Internet be described?
      How can the level of channel conflict in multiple marketing channels, including the Inter-
      net be described?
      How can the relationship between the level of channel conflict in multiple marketing
      channels, including the Internet and the channel outcomes be described?
These questions were further developed into a research model and research hy-
potheses (see Chapter 4.4, p. 127 for an overview). In the previous chapter, the
hypothesis testing indicated that some differences existed between the two samples,
i.e. Ducati and SAS. Hence, a comparison of the results of the hypothesis tests is
provided in Table 7.1. Differences are highlighted in grey.
Table 7.1 Hypothesis Tests – Comparison of Ducati and SAS
 H.       Independent           Dependent         Result for Ducati          Result for SAS
 no.        Variable             Variable              N = 43                   N = 168
 1       GOAL_SUM             CONFLICT                 Not Supported                 Supported
 2       GOAL_SUM             DOM_SUM                  Not Supported                 Supported
 3       DOM_SUM              CONFLICT                 Not Supported                 Supported
 4       COMM_SUM             GOAL_SUM                     Supported                 Supported
 5       COMM_SUM             DOM_SUM                      Supported             Not Supported
 6       COMM_SUM             CONFLICT                     Supported                 Supported
 7       CONFLICT             PERF                     Not Supported             Not Supported
 8       PERF                 SAT_SUM                      Supported                 Supported
 9       CONFLICT             SAT_SUM                  Not Supported             Not Supported
 10      COMM_SUM             PERF                         Supported                 Supported
 11      GOAL_SUM             PERF                         Supported                 Supported



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______ CHAPTER 7 ______________________________________________________________

As can be seen, Hypotheses one, two and three were statistically supported for SAS,
but not for Ducati. On the contrary, Hypothesis five was supported for Ducati but
not for SAS. The results of the hypothesis testing, along with the differences be-
tween the cases, will be discussed with respect to the research questions, i.e. the
causes of channel conflict, the level of channel conflict, and the relationship between the level
of channel conflict and outcomes.

7.1.1     Causes of Channel Conflict
The hypothesised causes of channel conflict are goal incompatibility, domain dissensus,
and inadequate communication. Relationships among these causes were also hypothe-
sized (see Table 4.2, p. 127, for an overview of the hypothesized relationships).

Goal Incompatibility
As can be seen in Table 7.1, for Ducati, statistical support could not be found for
goal incompatibility being a cause of channel conflict, whereas comparable statisti-
cal support was found for SAS. There were also differences between the cases re-
garding the relationship between goal incompatibility and domain dissensus. That
is, for Ducati statistical support could not be found for goal incompatibility as a
cause of domain dissensus, whereas statistical support for this relationship was
found for SAS.

A probable explanation for these contradictory results is that SAS’s expressed goal is
to increase its direct-to-the-customer Internet sales (as discussed in Chapter 6.5, p.
164), which in the end will lead to dis-intermediation. This goal obviously is in-
compatible with the goal of resellers, who, in order to make money, wish to re-
main the link between end customers and SAS. SAS has already tried to exclude
non-IATA travel agencies from the business relationship, a fact which probably is
reflected in the responses from these travel agencies. Non-IATA travel agencies do
not have access to SAS’s extranet (sassalesinfo.com), and they have to pay the same
fee as private persons in order to purchase tickets for their customers (see Chapter
5.4.3 for a further discussion). (That is not to say that IATA-accredited travel
agencies object to these actions from SAS; rather the reverse, since IATA accredi-
tation is connected with costs, among other things). On the contrary, since
Ducati’s resellers were involved in Ducati’s online sales, most of those resellers
probably perceive that Ducati wishes to maintain its relationship with them, and
that Ducati’s main goal in doing so is to help Ducati increase its sales, a goal which
is compatible with the resellers’ goal. The descriptive statistics seem to support this
assumption, as SAS’s resellers reported a fairly high mean (5.37 and 5.07) on two of
the most pronounced items measuring goal incompatibility, whereas Ducati’s resel-
lers reported a significantly lower mean on the same items (3.65 and 3.09; see Table
6.1, p. 145). Besides, Ducati’s resellers reported quite low levels of conflict on
items measuring Internet-related conflict (M = 2.61 and 2.61), whereas SAS’s re-
sellers reported fairly high levels of conflict on the same items (M = 4.50 and 4.64).

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________________________________ DISCUSSION, CONCLUSIONS & CONTRIBUTIONS ______

These results further indicate that goal incompatibility for Ducati was not closely
associated with Ducati’s Internet sales.

Moreover, SAS removed the sales commission to all travel agencies (see Chapter
2.4.2, p. 61). In addition, non-IATA travel agencies have to order tickets in the
same way as private persons, which means that they actually have to pay a fee to
purchase tickets for their customers (see Chapter 5.4.3). These actions are incom-
patible with agency theory13, which is based on the premise that principals delegate
duties to agents to act on their behalf. Since it is assumed that agents prefer to pur-
sue their self-interest over the interests of the principals, goal conflicts are resolved
through compensation based on performance (Eisenhardt, 1988). Consequently,
SAS’s removal of compensation to all travel agencies, along with their effort to ex-
clude non-IATA travel agencies from the business relationship, are probably other
reasons for the fairly high level of reported goal incompatibility among travel agen-
cies. As one non-IATA reseller put it, “I am doing SAS a favour, but instead of
rewarding me, they are charging me.” (see Chapter 5.4.3). Ducati, on the other
hand, granted its resellers a reduced commission on their online sales of motorcy-
cles (see Chapter 2.4.1, p. 53). That is, in order to purchase a motorcycle online,
customers had to choose a reference dealer, who delivered the motorcycle to the
end customer. The commission was reduced, since the resellers no longer were
performing all the traditional services, such as stock holding and marketing. Ac-
cordingly, resellers were compensated based on performance, i.e. for delivering the
motorcycles to customers, handling customer expectations, etc. However, in con-
trast to agency theory, Ducati also compensated resellers for online sales of accesso-
ries and apparel, although their resellers were not involved at all in these sales.
Hence, it seems as if Ducati compensates resellers even for the potential loss of
sales. As previously stated, according to agency theory, compensation resolves goal
conflicts with agents (cf. Eisenhardt, 1988). This seems to be true also in the
Ducati case, since resellers of Ducati reported a significantly lower level of goal in-
compatibility compared to SAS’s resellers.

The reasons discussed above can also likely explain why statistical support was
found for the relationship between goal incompatibility and domain dissensus for
SAS, but not for Ducati. Namely, SAS’s resellers seem to perceive that SAS’s ex-
pressed goal of increasing its direct-to-the-customer Internet sales has brought
about domain dissensus. In fact, from 2004 to 2006, the share of Internet bookings
increased 10%, whereas the share of tickets booked via travel agencies decreased
3%. Accordingly, travel agencies yielded rather high means on the items measuring
Internet-related domain dissensus, such as SAS’s Internet channel serves the same
customers as they do, markets identical products, competes with the reseller, and

13
   The agency theory has been applied in a number of settings, including inter-organisational rela-
tionships (Eisenhardt, 1988).

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______ CHAPTER 7 ______________________________________________________________

operates at the expense of the reseller’s channel; the means on those items were in
general significantly higher for SAS than for Ducati (see Table 6.1, p. 145).

To sum up, SAS’s expressed goal of increasing its online sales, along with their de-
cisions to remove the resellers’ commission on sales and to exclude non-IATA
travel agencies from the relationship, are probably the main reasons for goal con-
flict with their resellers. Ducati’s decisions to include resellers as much as possible
in online sales, and to compensate them, are probably the main reasons for the
rather low levels of goal incompatibility reported by their resellers.

Accordingly, in line with the results of previous research (Rosenberg & Stern,
1971), the findings of this research indicate partial support for the hypothesis that the level of
incompatible goals among channel members is positively associated with the frequency of con-
flicts. The findings further suggest partial support for the hypothesis that the level of goal in-
compatibility among channel members is positively associated with the level of Internet-related
domain dissensus.

Domain Dissensus
Regarding domain dissensus as a cause of channel conflict, only items associated
with Internet-related domain dissensus could be retained. Statistical support for the
hypothesized relationship could not be found for Ducati, whereas such statistical
support was found for SAS. The probable reason for the contradictory results is the
same as the one discussed in the previous section, i.e. that Ducati’s resellers are in-
volved in the transactions, whereas SAS’s resellers are totally bypassed by SAS’s
Internet sales. As a result, as previously stated, SAS’s resellers in general reported a
significantly higher level of domain dissensus than did Ducati’s resellers (see Table
6.1, p. 145). In other words, Internet sales do not seem to give rise to much do-
main dissensus for Ducati, whereas they seem to cause rather high levels of domain
dissensus for SAS.

In the first study of this thesis, Ducati’s management did not think that their Inter-
net sales caused much domain dissensus with resellers. Consequently, they did not
think that domain dissensus caused much conflict with resellers. SAS’s manage-
ment, on the other hand, claimed that domain dissensus was one of the major
causes of channel conflict. It can therefore be concluded that the results of the re-
seller study support the results of the producer study. The results of the reseller
study are similar to those of Rosenberg and Stern (1971), although for obvious rea-
sons their study did not address Internet-related domain dissensus.

Accordingly, the results of this research indicate partial support for the hypothesis that Inter-
net-related domain dissensus is a cause of channel conflict.




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________________________________ DISCUSSION, CONCLUSIONS & CONTRIBUTIONS ______

Inadequate Communication
In line with the findings of Etgar (1979), for both Ducati and SAS statistical sup-
port was found for the hypothesized positive relationship between inadequate
communication and level of channel conflict.

In fact, inadequate communication was the only statistically supported cause of
channel conflict for Ducati. Nevertheless, the means for items measuring inade-
quate communication were in general significantly higher for SAS than for Ducati.
The fact that non-IATA travel agencies do not have access to SAS’s extranet
(www.sassalesinfo.com) has likely contributed to the high mean. However, since it
is impossible within the scope of this thesis to distinguish between non-IATA and
IATA accredited travel agencies, (see Chapter 5.4.3, p. 136 for a further discussion)
this factor could not be controlled for.

In both cases, statistical support was found for the hypothesized positive relation-
ship between inadequate communication and goal incompatibility. In other words,
the findings indicate that inadequate communication increases the likelihood of in-
compatible goals among channel members.

It was also hypothesized that inadequate communication is positively associated
with domain dissensus. Statistical support for this relationship was found for Ducati
but not for SAS. The probable reason for this result is that for Ducati, the ex-
pressed goal of Internet sales of motorcycles was to create publicity in order to
build the brand (see Chapter 2, p. 49), even if some resellers interpreted it differ-
ently. Some resellers got angry and claimed that they would have been able to sell
motorcycles online just as well as Ducati did, if the company would just have given
them the opportunity (see Chapter 2, p. 51). Hence, some of Ducati’s resellers ex-
perienced domain-related conflict, such as, Ducati’s direct-to-the-customer Inter-
net sales competed with, and came at the expense of, the resellers, since Ducati
probably did not communicate sufficiently the real intention of the Internet sales,
which was to build the brand rather than dis-intermediate. Accordingly, for
Ducati, it seems as if the perception of domain dissensus derived from inadequate
communication – not incompatible goals. For SAS, on the other hand, the hy-
pothesized relationship between inadequate communication and domain dissensus
was not statistically supported. Still, travel agencies reported significantly higher
levels of perceived domain dissensus on most items, as compared to Ducati’s resel-
lers. As previously discussed, the relationship between incompatible goals and do-
main dissensus was statistically supported for SAS, because, among other reasons,
the goal of SAS’s Internet sales is to compete with travel agencies. It is therefore
likely that it does not matter how well SAS communicates with its resellers – better
communication would not lead to any changes in the underlying goal incompati-
bility, which seems to be the major cause of SAS’s domain dissensus.


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______ CHAPTER 7 ______________________________________________________________

In other words, in both cases support was found for a positive relationship between inadequate
communication and level of channel conflict. Moreover, in both cases it was found that inade-
quate communication increases the likelihood of incompatible goals between channel members.
Furthermore, the findings provide partial support for a positive relationship between inade-
quate communication and domain dissensus, i.e. for Ducati the majority of the domain dis-
sensus was likely caused by misunderstandings. For SAS, statistical support was found in-
stead for a positive relationship between channel members’ incompatible goals and domain
dissensus. In such instances, improved communication will probably not lead to major changes
in channel members’ perceptions of incongruent claims on the domain.

7.1.2      Level of Channel Conflict
General items were used to measure level of channel conflict, since it was judged
important to be able to use the same items for both channel settings (see Section
5.4.2, p. 133). Resellers’ perceptions of both frequency (F) and intensity (N) across
a representative set of issues were measured (see Table 6.1, p. 145). Overall, it was
found that in both cases reseller-producer relationships were governed by some
conflict between the parties, although the perceived level of conflict was rather
low. More specifically, resellers of both companies perceived that, on average, dis-
agreements were rather infrequent on information exchanges, product aspects, pricing is-
sues, payment terms, sales commission, producer’s sales organisation, advertising and other
promotional activities, and resellers’ sales effort. Likewise, the disagreements reported by
resellers of both companies on these items were rather weak.

On the other hand, SAS’s resellers reported significantly higher levels of disagree-
ment on producer’s Internet sales when channel was introduced, and producer’s present
Internet sales, than did Ducati’s reseller. In fact, for SAS the means for frequency
and intensity of the producer’s Internet sales when the channel was introduced
were even higher than the midpoint of the scale (F = 4.64; N = 4.66), compared
to the rather low levels of disagreement reported by Ducati’s resellers (F = 2.61; N
= 2.72). Similar results were reported for producer’s present Internet sales (F =
4.50, N = 4.28; F = 2.61, N = 2.59 for SAS and Ducati, respectively).

Nevertheless, although, as previously noted, Brown and Day (1981) used several
different combinations of frequency and intensity in their comparisons of different
measures of channel conflict, none of their proposed measures rendered attractive
properties for Structural Equation Modelling. Hence, it was decided to use only
the frequency of channel conflict to test the research model (see Section 6.4.2, p. 151
for a further discussion).

Brown and Day (1981) conducted an un-rotated, exploratory factor analysis on
each of their proposed measures of channel conflict. They concluded that the
measures were unidimensional, although all the items did not load on a single fac-
tor. In this study, an un-rotated exploratory factor analysis yielded a one-factor so-

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________________________________ DISCUSSION, CONCLUSIONS & CONTRIBUTIONS ______

lution. As the variance extracted for the frequency measure was much higher than
that reported by Brown and Day (1981) (51.2% vs. 42.8%), it was decided to pro-
ceed with the one-factor solution. The confirmatory factor analysis, however, re-
vealed that the first order construct fit the data poorly; instead, level of channel
conflict was found to consist of three dimensions: communication-related conflict,
monetary-related conflict, and Internet-related conflict.

A respectable amount of the channel conflict variance was explained by its causes.
For Ducati, the causes of channel conflict explained 33 percent of the variance in
the level of channel conflict, and for SAS they explained 22 percent.

7.1.3      Relationship between Level of Channel Conflict and Outcomes
Regarding the relationship between level of channel conflict and channel out-
comes, it was decided to test first the outcomes part of the research model (i.e. the
hypothesized relationships between the level of channel conflict, performance, and
satisfaction) for SAS (see Figure 6.3, p. 162). A moderate to substantial negative re-
lationship was found between level of conflict and performance, whereas the rela-
tionship between level of channel conflict and satisfaction was non-significant. A
substantial positive relationship was found between performance and satisfaction.
The level of channel conflict explained 9 percent of the performance variance.

Nevertheless, when the causes of channel conflict were included in the model,
moderate to substantial negative relationships were found between goal incompatibil-
ity and performance and between inadequate communication and performance, whereas
the relationship between level of channel conflict and performance was found to be non-
significant. It is noteworthy that these results apply to both cases. For Ducati, 40
percent of the variance in performance is explained, compared to 53 percent for
SAS (see Figure 6.5, p. 165). Moreover, in both cases, a substantial positive rela-
tionship was found between performance and satisfaction.

The results of this study therefore indicate that goal incompatibility and inadequate communi-
cation, rather than level of conflict, are negatively associated with performance. The results
further suggest that performance is positively associated with satisfaction.

7.2 Limitations, Contributions and Conclusions


T       his research contributes in several ways to the existing body of knowledge.
        However, since some of the limitations of the study might have affected
        the results, they are discussed in this section. Thereafter, some theoretical
contributions based on the results are presented, including an empirically derived
model. Finally, the managerial implications of the study are presented.




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______ CHAPTER 7 ______________________________________________________________

7.2.1       Limitations of the Study
The first limitation stems from the fact that only two companies (Ducati and SAS)
were involved in the study. The companies were selected because, in addition to
using resellers, they sell directly to end customers via the Internet. Another reason
for selecting these companies is they are different types; i.e. Ducati is a manufac-
turer and SAS is a service provider. In addition, both the producers’ and the resel-
lers’ perspectives were studied; this has rarely been done in previous research (see
Appendix 2). Nevertheless, as a result of the research design, the sample size for
Ducati is rather limited (N = 43). Although comparable to sample sizes used in
some previous studies of channel conflict (e.g., Brown & Frazier, 1978; Rosson &
Ford, 1980), the limited size of this sample decreases the probability of obtaining
statistical significance for real relationships (cf. Cohen, 1990). This low power
could partly explain the differences between the results of the hypothesis tests for
the two cases. It should be noted, however, that one of the hypotheses, i.e. that in-
adequate communication is positively associated with domain dissensus, was sup-
ported in the case with the limited sample size but not in the other case.

Second, one reason for the lower levels of domain dissensus, goal incompatibility
and Internet-related conflict for Ducati could be that they did not sell motorcycles
online during the last few years. However, the average duration of resellers’ rela-
tionships with Ducati was close to ten years, and almost all the resellers had a rela-
tionship with Ducati when Ducati sold motorcycles online. Consequently, it is
reasonable to assume that resellers would have reported higher levels of conflict on
the item disagreements on producer’s direct-to-the-customer Internet sales when channel was
introduced, provided that they considered the producer’s online sales of motorcycles
to be a genuine problem.

Finally, in the reseller study, the key-informant approach (Sullivan, 2001) was used
to collect data, i.e. the president/CEO was addressed. Although some researchers
have questioned the ability of single informants to provide reliable data in self-
report studies (e.g., Seidler, 1974), more recent research has found that single in-
formants from senior management provide reliable and valid data (cf. Zahra &
Covin, 1993).

7.2.2      Theoretical Contributions
Although goal incompatibility, domain dissensus, and differing perceptions of real-
ity are presently accepted as the major causes of channel conflict (cf. Coughlan et
al., 2001), the results of this study confirm the results from the producer study, i.e.
that inadequate communication probably should replace differing perceptions of
reality as one of the primary causes of conflict, since differing perceptions of reality
seem to be the result of inadequate communication.



                                           180
________________________________ DISCUSSION, CONCLUSIONS & CONTRIBUTIONS ______

Furthermore, to the researcher’s knowledge, the reseller study constitutes the first
attempt to investigate the relationships among the causes of channel conflict. The
results of this study suggest that the causes in fact are inter-related. For both cases,
substantial statistical support was found for the hypothesized positive relationship
between inadequate communication and goal incompatibility. Moreover, for SAS,
statistical support was found for the hypothesized positive relationship between
goal incompatibility and domain dissensus, whereas for Ducati, statistical support
was found for the hypothesized positive relationship between inadequate commu-
nication and domain dissensus. The probable reason for the contradictory results is
that, whenever inadequate communication is related to domain dissensus, most of
the domain dissensus is likely caused by misunderstandings. On the contrary, when
channel members’ incompatible goals lead to domain dissensus, the latter is most
likely caused by channel members’ incompatible claims on the domain. In the lat-
ter case, improved communication is not likely to lead to any major changes in the
channel members’ claims.

Although it has been argued in conceptual papers that the addition of an Internet
channel leads to channel conflict (Smith et al., 1999; Gilbert & Bacheldor, 2000),
the present study is probably the first to test this assumption empirically. Indeed,
for SAS, significant support was found for the hypothesized positive relationships
between Internet-related domain dissensus and level of channel conflict, and be-
tween goal incompatibility and level of channel conflict. However, Ducati, statisti-
cal support could not be found for either of these relationships. The probable rea-
son for the contradictory results is that SAS’s resellers were totally bypassed by the
producer’s Internet sales, which threatened the very existence of the reseller chan-
nel; thus, resellers perceived conflict. Ducati’s resellers were involved in the pro-
ducer’s Internet sales, in that they received a reduced commission on the pro-
ducer’s Internet sales as well as contact information on the end customers. Hence,
the results indicate that if producers handle channels pro-actively, and they involve
resellers in their Internet sales from the beginning, i.e. apply channel integration,
conflict can be minimized.

Concerning the measurement of channel conflict, it was found that the different
combinations of frequency and intensity suggested by Brown and Day (1981) did
not perform well in the confirmatory factor analysis of the present study. Thus,
only frequency was used to measure the level of channel conflict. Moreover, previ-
ous research has treated channel conflict as a unidimensional construct (e.g., Brown
& Day, 1981). The present research, however, revealed that channel conflict is a
multi-dimensional construct. That is, three dimensions were identified: communica-
tion-related conflict, monetary-related conflict, and Internet-related conflict.

Regarding the hypothesized negative relationship between channel conflict and
performance, when the underlying causes of conflict were not included in the
model, there was a moderate to substantial negative relationship between channel

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conflict and performance. However, when the causes of conflict were included in
the model, moderate to substantial negative relationships were found between two
underlying causes of conflict, (goal incompatibility and inadequate communication), and
resellers’ perceived performance, whereas the relationship between channel conflict and
performance became insignificant. In other words, unlike previous research (Lusch,
1976a; Pearson & Monoky, 1976; Kelly & Peters, 1977; Cronin & Baker, 1993;
Webb & Hogan, 2002), the reseller study failed to find statistical support for the
hypothesized negative relationship between level of channel conflict and perceived
performance. Likewise contrary to previous research (Dwyer, 1980; Arndt &
Ogaard, 1986; Frazier et al., 1989; Anderson & Narus, 1990; Cronin & Baker,
1993; Ganesan, 1993; Rawwas et al., 1997; Webb, 1997; Lee, 2001; Webb & Ho-
gan, 2002; Leonidou et al., 2006), the present study failed to find statistical support
for the hypothesized negative relationship between level of channel conflict and
satisfaction. It should be noted that similar results were found for both cases. It can
therefore be concluded that conflict per se does not significantly affect resellers’ per-
ceived performance or satisfaction. Since causes are the underlying bases of con-
flict, whereas disagreements are symptoms of the causes (Ong et al., 1990), unless
disagreements lead to changes in the underlying cause or causes of the conflict, re-
sellers’ perceived performance will continue to be negatively affected by these
causes. To the researcher’s knowledge, the reseller study constitutes the first at-
tempt to investigate the direct relationships between inadequate communication
and perceived performance, and between goal incompatibility and perceived per-
formance, in multiple marketing channels.

Empirically Derived Model
An empirically derived model that incorporates what was learned from the results
of the reseller study and the previous discussion is presented in Figure 7.1. A sum-
mary of the proposed relationships is presented in Table 7.2. To facilitate compari-
son with the original research model (see Figure 4.1, p. 126) the propositions have
the same numbers as the corresponding original hypotheses. Therefore, the most
noteworthy changes to the original model are discussed at the end of this section.

Similar with the findings of Rosenberg and Stern (1971), the results of the reseller
study suggest partial support for goal incompatibility as a cause of channel conflict.
Rosenberg and Stern (1971) concluded that they found partial support concerning
the causes of conflict because the issues “may have been resolved through the par-
ticular dynamics of each relationship” (p. 441). This seems to be true also in the
present study. As discussed previously, for Ducati the relationship was insignificant,
probably since Ducati’s resellers were involved in Ducati’s Internet sales. Hence,
the first proposition:
 P1: The level of goal incompatibility among multiple marketing channels is positively as-
 sociated with the level of channel conflict.


                                           182
________________________________ DISCUSSION, CONCLUSIONS & CONTRIBUTIONS ______


                                                                  P7-
           GOAL
      INCOMPATIBILITY                                                     PERFORMANCE

                                   P1+                            P8-
                   P4+

       INADEQUATE              P6+               LEVEL OF
      COMMUNICATION                              CHANNEL
                                                 CONFLICT


 P2+               P5+                                                          P9+
                                   P3+

         DOMAIN
        DISSENSUS                                                          SATISFACTION




Figure 7.1 Empirically Derived Model
Table 7.2 Overview of Propositions
 P.     Proposed Relationship
 no.
 P1     The level of goal incompatibility among multiple marketing channels is positively associ-
        ated with the level of channel conflict.
 P2     The level of goal incompatibility among multiple marketing channels is positively associ-
        ated with the level of domain dissensus.
 P3     The level of domain dissensus among multiple marketing channels is positively associated
        with the level of channel conflict.
 P4     The level of inadequate communication among multiple marketing channels is positively
        associated with the level of goal incompatibility.
 P5     The level of inadequate communication among multiple marketing channels is positively
        associated with the level of domain dissensus.
 P6     The level of inadequate communication among multiple marketing channels is positively
        associated with the level of channel conflict.
 P7     The level of goal incompatibility among multiple marketing channels is negatively associ-
        ated with the level of perceived performance.
 P8     The level of inadequate communication among multiple marketing channels is negatively
        associated with the level of perceived performance.
 P9     The level of perceived performance among multiple marketing channels is positively asso-
        ciated with the level of perceived satisfaction with the channel system.

The results from the reseller study also indicate partial support for the positive rela-
tionship between goal incompatibility and the level of domain dissensus. The
probable reason for this outcome is the same as discussed in relation to Proposition
one above. Accordingly, the second proposition:


                                               183
______ CHAPTER 7 ______________________________________________________________


 P2: The level of goal incompatibility among multiple marketing channels is positively as-
 sociated with the level of domain dissensus.

Both the producer study and the reseller study provide support for Proposition
three, i.e. domain dissensus was found to be a cause of channel conflict, although
the reseller study only provided partial support for this relationship. The probable
reason for this outcome is the same as discussed in relation to Proposition one. Ac-
cordingly:

 P3: The level of domain dissensus among multiple marketing channels is positively asso-
 ciated with the level of channel conflict.

Concerning Proposition four, statistical support was found in both cases for the
hypothesized positive relationship between inadequate communication and goal
incompatibility. In other words, the findings indicate that inadequate communica-
tion increases the likelihood of incompatible goals among channel members. The
probable reason for this is that inadequate communication leads to misunderstand-
ings, which leads resellers to adopt faulty goals that are incompatible with the pro-
ducers’ goals, which in turn leads to goal-related conflict. This reasoning is in line
with Etgar (1979), who argues that inadequate communications “often lead to
misunderstandings, incorrect strategies, and mutual feelings of frustration” (p. 65).
Following from this discussion, the fourth proposition:
 P4: The level of inadequate communication among multiple marketing channels is posi-
 tively associated with the level of goal incompatibility.

Regarding Proposition five, in the reseller study support was found for Ducati for
the hypothesized positive relationship between inadequate communication and
Internet-related domain dissensus. Even though the hypothesized relationship was
non-significant for SAS it is plausible that some domain dissensus occurred there as
well because of inadequate communication, although the measures used in this re-
search did not capture it. Hence, the following proposition:
 P5: The level of inadequate communication among multiple marketing channels is posi-
 tively associated with the level of domain dissensus.

In line with the findings of Etgar (1979), the hypothesized positive relationship be-
tween inadequate communication and level of channel conflict was supported in
both cases by the reseller study. In addition, the results support the findings from
the producer study. Accordingly, the following proposition:

 P6: The level of inadequate communication among multiple marketing channels is posi-
 tively associated with the level of channel conflict.


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________________________________ DISCUSSION, CONCLUSIONS & CONTRIBUTIONS ______

The most significant changes to the model involve the removal of the relationships
between level of channel conflict and performance, level of channel conflict and
satisfaction, and the proposed negative relationships between goal incompatibility
and performance, and between inadequate communication and performance. Sub-
stantial statistical support was found for goal incompatibility and inadequate com-
munication, rather than level of channel conflict, having a negative influence on
resellers’ perceived performance. It is noteworthy that similar results were found
for both cases.

As previously noted, the same measures were used in both channel settings in order
to capture level of channel conflict. Thus, one possible explanation for the non-
significant relationships between level of channel conflict and performance, and be-
tween level of channel conflict and satisfaction, is that the measures were too im-
precise and therefore did not capture the conflict. However, since the causes of
conflict explained considerable portions of the variance in the level of channel
conflict (22 percent and 33 percent, respectively) the measures do not seem to be
the reason for the non-significant result. Instead, since disagreements are just symp-
toms of the underlying causes (Ong et al., 1990), a more plausible explanation is
that unless disagreements lead to a change in the underlying cause or causes, the
basis for conflict will not disappear. Resellers have a number of options for dealing
with this problem, e.g., end the business relationship, argue even more, behave in
their own interest, or simply comply with the situation. Today, the airline industry
is distinguished by its refusal to give a commission to travel agencies and by its di-
rect sales of tickets to end customers via the Internet, issues that are related to
travel agencies’ performance. Although travel agencies reported rather high levels
of conflict on these issues, such conflicts are unlikely to lead to any changes in the
underlying causes. So, even though travel agencies are not pleased with the situa-
tion (e.g., they reported rather high levels of goal incompatibility), if they want to
remain in the travel business they simply have to adjust to the fact that SAS is
competing with them and no longer gives them a commission on sales. In other
words, disagreements about the eliminated commission on sales and SAS’s Internet
sales have not led to any changes in the underlying causes of conflict, (goal incom-
patibility and domain dissensus), and therefore the conflict remains, which in turn
affects resellers’ perceived performance.

As regards Proposition seven, moderate to substantial statistical support was found
for both cases for the hypothesized negative relationship between goal incompati-
bility and perceived performance. Although the study investigated whether pro-
ducer’s and reseller’s goals are compatible, it did not investigate the nature of these
goals. Achrol and Etzel (2003) argue that over time a number of goals (cost mini-
mization, survival, growth, customer service, meeting competition, market share,
cash flow, supplier relations, and so on) can be important to companies. They
found that resellers’ performance is affected by the goals they adopt in relation to


                                         185
______ CHAPTER 7 ______________________________________________________________

the market environment. It can therefore be assumed that, even though resellers
are expected to act on producers’ behalf, the producer and resellers are separate
businesses that wish to maximize their own performance and frequently function in
different market environments; hence, it is likely that the goals of the parties are at
least to a certain degree incompatible, and that resellers’ performance is thereby to
some extent affected. Agency theory postulates that as long as agents receive com-
pensation based on performance it is likely that goal incompatibility will be kept at
low levels and, therefore, not give rise to much conflict (cf. Eisenhardt, 1988).
However, most resellers carry multiple brands, so if they perceive that the rewards
from selling these other brands exceed those from selling the brand of the focal
producer, resellers may reject the products of the focal producer (Gilliland, 2004).
Consequently, if resellers perceive that goal incompatibility with the focal producer
makes it harder for them to achieve the expected performance on the focal pro-
ducer's brand, as compared to competitors’ brands, they are likely to reject the
former, which in turn will lead to decreased performance for the focal producer.
For SAS, it was found that when it removed the commission on sales and intro-
duced its online sales, some travel agencies tried to reject SAS and redirect their
travel bookings to airlines that were still offering a commission (see Chapter 2.4.2,
p. 62), an action that probably affected SAS’s performance. In other words, goal
incompatibility between channel members might affect performance of both par-
ties. Accordingly, the following proposition:
 P7: The level of goal incompatibility among multiple marketing channels is negatively as-
 sociated with the level of perceived performance.

For both cases, moderate to substantial statistical support was found for the hy-
pothesized negative relationship between inadequate communication and resellers’
perceived performance. As Kim et al. (2006) contend, “high-quality information
exchange not only helps coordinate with channel partners but also improves re-
sponsiveness of the partnership and market performance” (p. 52). For instance, in-
formation about new products, promotional campaigns, and so on has to be trans-
mitted from the producer to the resellers (Etgar, 1979). Inadequate communication
can therefore be expected to lead to a lack of coordination. Since lack of coordina-
tion leads to lost opportunities and low levels of customer satisfaction (Gilliland,
2004), it is hardly surprising that inadequate communication was found to nega-
tively affect resellers’ performance. However, lost opportunities and low levels of
customer satisfaction are also likely to affect the producers’ performance. Hence,
Proposition eight:

 P8: The level of inadequate communication among multiple marketing channels is nega-
 tively associated with the level of perceived performance.




                                           186
________________________________ DISCUSSION, CONCLUSIONS & CONTRIBUTIONS ______

Regarding the ninth proposition, in line with results from previous research
(Cronin & Baker, 1993), statistical support was found in both cases for the hy-
pothesized positive relationship between performance and satisfaction. Accord-
ingly, the following proposition:
 P9: The level of perceived performance among multiple marketing channels is positively
 associated with the level of perceived satisfaction with the channel system.

7.2.3     Managerial Implications
From the findings of this study, a number of managerial implications can be identi-
fied. The implications apply to companies using resellers in general, and in particu-
lar to firms that complement their reseller networks with direct-to-the-customer
Internet sales.

Goal Incompatibility & Domain Dissensus
Channel members’ goals have seldom been included in research on marketing
channels, since it often has been assumed that resellers’ goals are an extension of
producers’ goals (Achrol & Etzel, 2003). However, in this research it was found
that resellers perceived their goals and the focal producer’s goals to be relatively or
even considerably incompatible. It was further found that incompatible goals had
significant negative performance implications for resellers. So what implications do
resellers’ perceptions of their own performance have for the producer? Since resel-
lers often represent multiple brands, they are likely to reject a brand if they per-
ceive that it is offers lesser rewards compared to other brands (Gilliland, 2004). Re-
seller rejection, in turn, will have negative performance implications for the pro-
ducer. Accordingly, goal incompatibility should not be taken lightly by producers.

Already from the beginning, Ducati’s resellers were involved in Ducati’s online
sales. When customers ordered motorcycles online they had to choose a reference
dealer, who delivered the motorcycle to the customer. Reference dealers received
a reduced commission on these sales, since they did not have any marketing costs,
etc. Reference dealers also received commissions on the producer’s Internet sales of
apparel or accessories, although these goods were delivered directly to the custom-
ers. It therefore seems as if Ducati compensates resellers for the potential loss of
sales. In addition, the reference dealer received contact information on these cus-
tomers. Travel agencies, on the other hand, were totally bypassed by SAS with re-
gard to online sales. Moreover, travel agencies did not receive a commission on
tickets that they sold. As could be expected, Ducati’s resellers reported much lower
levels of goal incompatibility, domain dissensus, and disagreements regarding the
producer’s Internet sales. It seems clear that when incompatible goals refer to the
mere existence of a channel per se, channel members of the threatened channel will
perceive conflict. Consequently, producers who are planning to sell directly to end
customers in addition to using resellers can probably decrease the levels of goal in-

                                           187
______ CHAPTER 7 ______________________________________________________________

compatibility and domain dissensus by involving resellers in online sales from the
beginning, i.e. channel integration. An example of channel integration is to use
reference resellers, which receive both the customer contact information and a
commission on the producer’s sales. They might even deliver the products to the
end customers.

As the airline industry is distinguished by its lack of commission on sales and by
producers who bypass resellers by using the Internet, it is hardly surprising that
travel agencies reported rather high levels of goal incompatibility, domain dissen-
sus, and disagreements concerning the producer’s Internet sales. So, if there were
an option that offered travel agencies better rewards, the agencies would likely try
to influence customers to choose that option. Depending on whose perspective
one takes, this tactic offers either an opportunity or a threat to companies. For in-
stance, the National Hockey League star Peter Forsberg and associates are planning
to start an airline, Höga Kusten Flyg, in January, 2008. The airline will operate be-
tween the Swedish cities of Stockholm and Örnsköldsvik. SAS is already serving
this route. Even if Höga Kusten Flyg offered travel agencies just a small commis-
sion on sales, it would probably influence them to advise customers to fly with
Höga Kusten Flyg. Swedish law would probably prevent SAS from offering travel
agencies a commission on sales, unless they offered it for all its Swedish routes.
Similarly, if the Swedish train operator SJ started to offer travel agencies a commis-
sion on sales, the agencies would probably advise customers to choose the high ve-
locity train X2000 instead of flying for relatively short routes, such as Stockholm-
Gothenburg14, especially since the time saved by flying is minimal. Travel agencies
would probably raise additional arguments in favour of train travel, such as envi-
ronmental impact.

Nevertheless, resellers and producers are separate businesses that wish to maximize
their performance. Therefore, all goal incompatibility cannot, and should not, be
avoided. But, producers likely can benefit from avoiding unnecessary goal incom-
patibility. It was found in the present study that one major reason for incompatible
goals among channel members is inadequate communication. The probable reason
for this is that when communication is inadequate, misunderstandings occur. This
means that resellers needlessly adopt faulty goals that are incompatible with the
producer’s goals. One way for producers to avoid unnecessary goal incompatibility
is to improve their communication with resellers.

Inadequate Communication
George Bernard Shaw once said, “The greatest problem with communication is
the illusion that it has been accomplished”. This seems to be true also in the com-

14
    The distance between Stockholm and Gothenburg is 478 km, see www.lundberg-
lagerstedt.se/distance/

                                         188
________________________________ DISCUSSION, CONCLUSIONS & CONTRIBUTIONS ______

panies studied in this research, since resellers of both companies reported that the
focal producer did not communicate well enough with them. It was further found
that inadequate communication had a substantial effect on resellers’ perceived per-
formance. Moreover, inadequate communication probably leads to a lack of coor-
dination. Lack of coordination, in turn, leads to lost opportunities and low levels of
customer satisfaction (Gilliland, 2004), and probably affects the producer’s per-
formance as well. Inadequate communication is therefore likely to have negative
performance implications for both resellers and producers. Although numerous re-
searchers have stressed the importance of well-functioning communication in mar-
keting channels (e.g., Anderson & Weitz, 1992; Kim et al., 2006), it seems that it
cannot be overemphasized. The producer study indicates that a well-designed ex-
tranet can support producers in providing resellers with good information.

Level of Channel Conflict
As pointed out by Anderson and Narus (1990), “Even firms in successful partner-
ships would readily acknowledge that disagreements are inevitable” (p. 56). None-
theless, the traditional view of managers is that conflict should be reduced, or even
avoided (Menon et al., 1996). Since the present research failed to find statistical
support for the hypothesized negative relationship between level of channel con-
flict and perceived performance, one could argue that managers do not need to
consider channel conflict. But rather than ignore conflicts, managers should view
them as symptoms of their underlying causes. With this perspective, conflicts actu-
ally offer managers the opportunity to identify the core elements of the conflict
and diminish them before they have significant performance implications for both
parties in the channel relationship.

7.3 Suggestions for Future Research
The results of this research question some of the premises in the channel conflict
literature. Specifically, goal incompatibility and inadequate communication were
found to have a direct and negative effect on resellers’ performance in both cases.
In contrast, channel conflict per se was not detrimental to firms. Although the
channels included in this research were of polar types (i.e. manufacturing company
vs. service provider), both channel systems comprised multiple marketing channels,
including the Internet. Future research should investigate whether the results of
this research apply to other channel types and/or systems.

Since in both cases goal incompatibility and inadequate communication were
found to negatively influence resellers’ perceived performance, future research
should include in-depth interviews with resellers in order to deepen the under-
standing of these relationships. In addition, future research should address the im-
pact of these relationships on producers’ performance. Moreover, it was investi-
gated in this research whether resellers perceive their goals and the producer’s goals


                                         189
______ CHAPTER 7 ______________________________________________________________

to be compatible, but the nature of these goals was not explored. This is an issue
for future research. Research is also needed on how communication within mar-
keting channels can be improved. For instance, the results of the producer study
indicate that an extranet can support producers in providing resellers with adequate
information, and that conflict with resellers thereby is reduced. Hence, future re-
search should address the effect of extranets on marketing channels, as well as the
structure of well-designed extranets.

This research also sheds new light on the constitution of the channel conflict con-
struct. Namely, channel conflict was found to be a multi-dimensional construct,
the dimensions being communication-related conflict, monetary-related conflict,
and Internet-related conflict. Although a substantial portion of the variance in
channel conflict was explained (33 and 22 percent for Ducati and SAS, respec-
tively), future research should develop additional dimensions of channel conflict. It
should also develop additional items for each dimension, since conflict issues can
likely be used to identify the causes of conflict that in turn influence performance
negatively. One way to facilitate such work could be to focus on conflict within
one channel setting.

Several other important constructs might be added to the model. For example,
commitment is viewed by some researchers as essential to successful long-term re-
lationships (e.g., Gundlach et al., 1995). Perceived interdependence is another im-
portant construct in channel research (e.g., Kumar et al., 1995), since in most cases
marketing channels are combinations of interdependent organisations. Finally, al-
though some scholars argue that some conflict in marketing channels is needed to
avoid passivity and lack of innovation (e.g., Boulding, 1965; Stern & Heskett,
1969), functionality of conflict is a construct that has been more or less neglected
in the channel conflict literature. In fact, only one study could be found that in-
cluded this concept (i.e. Anderson & Narus, 1990). Future research is therefore en-
couraged to investigate whether conflict in marketing channels can be functional
and, if so, in which situations.




                                        190
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______________________________________________________________ APPENDIX 1 ______

Appendix 1 Examples of Cause-Related Issues from the Research Instrument
used in the Three Channel Dyads (Rosenberg & Stern, 1971, p. 439)
 Conflict   Manufacturer-               Distributors-                 Manufacturer-
 Cause      Distributors                Dealers                       Dealers
 Goals      Distributors’ prime goal    Dealer should prefer to tie   Dealer often sells more
            is to always increase his   up as little of his working   Brand X in order to ob-
            sales.                      capital as possible in        tain incentive trips, al-
                                        equipment and parts in-       though he may not make
            Distributor should be       ventory.                      any profit on the extra
            willing to sacrifice some                                 sales.
            of his short-run profits    Dealer is basically a rug-
            (one-year-basis) by fol-    ged individualist who         Dealer’s ability to install
            lowing manufacturer’s       wants the challenge of        and service Brand X for
            recommendation for          running his own business      the customer is more im-
            making more profit in       as he sees fit.               portant than manufac-
            the long run.                                             turer’s ability to produce
                                        Dealer has little desire to   the “best” quality brand in
            Distributor does not        establish himself among       the industry.
            want to sacrifice his in-   his customers as an “au-
            dependence and discre-      thority” in this product      It is to dealer’s advantage
            tion over his own busi-     line.                         to add major sidelines to
            ness to the manufac-                                      his business, rather than to
            turer.                                                    concentrate fully on the
                                                                      primary product of Brand
                                                                      X.
 Domains    It is solely manufac-       When dealer returns a de-     Manufacturer should set
            turer’s responsibility to   fective product, he should    and enforce standards for
            project the product mix     not incur any cost (e.g.,     dealer, to be sure the ul-
            for the coming year and     handling charges).            timate consumer is getting
            to base production                                        a fair value for his pur-
            schedules upon it.          Distributor has the right     chase of Brand X.
                                        to set sales quotas on
            Because of the high         dealer and to hold him ac-    Dealers have a right to
            demand for Brand X          countable for them.           register opinions to manu-
            during the summer, dis-                                   facturer regarding product
            tributor should pre-        When dealer has a serious     design features and to get
            stock.                      complaint, he has the         these suggestions incorpo-
                                        right to go over distribu-    rated into the product.
            When offering funds for     tor’s head and discuss the
            a joint promotion cam-      matter with manufacturer.     Where breakdowns can be
            paign, manufacturer is                                    traced to manufacturer,
            justified in specifying                                   dealer should receive labor
            the exact ways in which                                   and materials allowances
            funds may be spent by                                     from manufacturer.
            distributor and his deal-
            ers.




                                               1
______ APPENDIX 1 ______________________________________________________________


Percep-    Manufacturer is more        The more distributor           Nearly every major manu-
tions      willing to try new ideas    helps dealer run his busi-     facturer’s technological
           in selling and sales pro-   ness, the greater dealer’s     capability to produce a
           motion strategy than is     sales volume.                  good product is about
           distributor.                                               equal in his industry.
                                       Distributor is too strict in
           Manufacturer is inflexi-    enforcement of credit          Dealer’s success is more
           ble when distributor de-    terms and discounts in-        assured if he is tied to
           sires action on a special   volving dealer.                Brand X than if tied to
           problem.                                                   any other brand.
                                       Dealer is not promo-
           Manufacturer is rapidly     tional-minded enough.          Manufacturer is fair and
           approaching the day                                        adequate from dealer’s
           when product quality                                       point of view.
           and shortage problems
           will be eliminated.
Miscell-   Distributor often en-       Distributor’s salesmen are     Dealers are now less loyal
aneous     counters difficulties in    typically pleasant when        toward manufacturer’s
           communicating with          taking orders but less co-     brands because the large
           manufacturer and other      operative when com-            corporation has displaced
           distributors in order to    plaints are made.              the family-owned firm.
           obtain inventory items.
                                       Dealer does not imple-         When manufacturer
           Manufacturer hires          ment all the training re-      changes the specifications
           away some of distribu-      ceived from distributor.       of a product, manufacturer
           tors’ best personnel.                                      is slow to inform dealer
                                       Distributor promises de-       about the new product
           Manufacturer withholds      livery to meet dealer’s re-    details.
           marketing research data     quest just to get past cur-
           from distributor.           rent problems, even at the     Dealer’s showroom area is
                                       risk of not being fully sure   very well maintained for
                                       that distributor can make      demonstrations.
                                       good his promises.




                                              2
______________________________________________________________ APPENDIX 2 ______

Appendix 2 Empirical Studies of Channel Conflict in Marketing Channels
 Study             Empirical         Sample            Research         Research Ap-       Int-
                   Setting           Size              Strategy             proach         er-
                                                                      Quali-    Quan-      net
                                                                      tative    titative
 (Assael, 1969)    Manufacturer-     9 manu-           Case study         X
                   Dealer            facturer rep-     (open-ended
                   (automobiles)     resentatives      interviews)
                   US                + 81 dealers
 (Pruden, 1969)    Producer-         44 sales calls    Survey (per-                X
                   Distributors      made by 6 of      sonal inter-
                   (wood building    producer’s        views)
                   materials)        salesmen
                   US
 (Rosenberg &      Manufacturer-     4 + 8 manu-       Survey                      X
 Stern, 1971)      Distributor-      facturer rep-     (mail ques-
                   Dealers (rela-    resentatives      tionnaire &
                   tively expen-     + 11 distri-      personal in-
                   sive household    butors            terviews)
                   durables)         + 87 dealers
                   US
 (Walker, 1972)    Simulated         72 students       Experiment                  X
                   Manufacturer-     (36 manu-
                   Retailer          facturer-
                   Channel           retailer
                   (students)        groups)
                   US
 (Pearson,         Vendors-          55 respon-        Survey                      X
 1973)             Retailers         dents (from       (question-
                   (Groceries)       both vendor       naire)
                   US                and retailer
                                     side of
                                     channel)
 (Stern, Stern-    Simulated         62                Experiment                  X
 thal & Craig,     Manufacturer-     student
 1973a; Stern et   Wholesaler        groups
 al., 1973b;       Channel
 Stern, Stern-     (students)
 thal & Craig,     US
 1975)
 (Foster &         Manufacturer-     167 retailers     Survey                      X
 Shuptrine,        Wholesaler-       + 4 whole-        (interviews)
 1974)             Retailer          salers
                   Channel
                   (specialty con-
                   sumer product)
                   US




                                                   1
______ APPENDIX 2 ______________________________________________________________


Study            Empirical          Sample            Research          Research Ap-       Int-
                 Setting            Size              Strategy              proach         er-
                                                                      Quali-    Quan-      net
                                                                      tative    titative
(Rosenberg,      Manufacturer-      8 manu-           Personal in-        X
1974)            Reseller (air      facturer          terviews (in-
                 conditioning,      executives        terview
                 cosmetics, fab-                      guide, open-
                 rics, groceries                      ended ques-
                 gasoline, paper,                     tions)
                 sewing ma-
                 chines, soaps,
                 etc)
                 US
                 Multiple
                 Marketing
                 Channels
(Hunger &        Simulated          108 male          Experiment                   X
Stern, 1976)     Manufacturer-      under-
                 Distributor        graduate
                 Channel            students
                 (students)         (36 manu-
                 US                 facturer-
                                    distributor
                                    groups)
(Lusch, 1976b,   Manufacturer-      567 dealers       Survey                       X
1976a)           Dealers                              (mail ques-
                 (automobiles)                        tionnaire)
                 US
(Pearson &       Wholesalers-       54 dyads (re-     Survey                       X
Monoky,          Retailers          tail grocery      (question-
1976)            (groceries)        byers + their     naire)
                 US                 grocery ven-
                                    dors
(Shuptrine &     Manufacturer-      157 retailers     Survey                       X
Foster, 1976)    Retailer chan-                       (interviews)
                 nel (specialty
                 consumer
                 product sold
                 through single-
                 line retail
                 stores)
(Brown, 1977)    Simulated          47 under-         Experiment                   X
                 Manufacturer-      graduate
                 Retailer chan-     students
                 nel
                 (students)
                 US



                                                  2
______________________________________________________________ APPENDIX 2 ______


 Study            Empirical         Sample             Research          Research Ap-       Int-
                  Setting           Size               Strategy              proach         er-
                                                                       Quali-    Quan-      net
                                                                       tative    titative
 (Kelly & Pe-     Franchisee-       27 franchi-        Survey                        X
 ters, 1977)      Distributor       sees + 12          (personal in-
                  (fast food,       distributors       terviews)
                  automotive
                  service, hotel,
                  industrial
                  goods, con-
                  sumer goods)
                  US
 (Brown & Fra-    Manufacturer-     26 dealers         Survey                       X
 zier, 1978)      Dealers (auto-                       (personal in-
                  mobiles)                             terviews)
                  US
 (Brown, 1979)    Manufacturer-     210 dealers        Survey                       X
                  Dealers (auto-                       (mail ques-
                  mobiles)                             tionnaire)
                  US
 (Etgar, 1979)    Manufacturer-     138 dealers        Survey                       X
                  Dealers (furni-                      (personal in-
                  ture, automo-                        terviews)
                  biles, liquor,
                  shoes, insur-
                  ance, stereo)
                  US
 (Dwyer, 1980)    Simulated         80 students        Experiment                   X
                  Bilateral Du-     (20 quads;
                  opoly             2 manu-
                  (students)        facturers +
                  US                2 resellers/
                                    quad)
 (Rosson &        Manufacturer-     19 manu-           Survey                       X
 Ford, 1980)      Distributor       facturers in       (personal in-
                  (electronics,     Canada ex-         terviews)
                  industrial        porting to
                  leathers, etc.)   the UK
                  Canada
 (Brown &         Manufacturer-     210 dealers        Survey                       X
 Day, 1981)       Dealer                               (question-
                  (automobiles)                        naire)
                  US
 (Schul et al.,   Franchisor-       349 franchi-       Survey                       X
 1981)            Franchisee        sees               (mail ques-
                  (real estate                         tionnaire)
                  brokers)
                  US


                                                   3
______ APPENDIX 2 ______________________________________________________________


Study             Empirical          Sample             Research          Research Ap-       Int-
                  Setting            Size               Strategy              proach         er-
                                                                        Quali-    Quan-      net
                                                                        tative    titative
(Wilkinson,       Manufacturer-      60 hotels          Survey                        X
1981)             Retailer (75       (i.e. some         (personal in-
                  brewer-hotel       hotels dealt       terviews)
                  retailer dyads)    with two
                  Sydney             breweries)
(Ross &           Brokers-           54 matched         Survey                       X
Lusch, 1982)      Wholesalers        pairs of bro-      (mail ques-
                  (groceries)        kers-              tionnaire)
                  US                 wholesalers
(Rosson &         Manufacturers-     21 manu-           Survey                       X
Ford, 1982)       Distributors       facturer-          (personal in-
                  (Canadian          distributor        terviews)
                  manufacturers-     dyads
                  UK distri-
                  butors)
(Brown et al.,    Suppliers-         139 retailers      Survey                       X
1983)             Retailers (beer,                      (personal in-
                  fast food,                            terviews)
                  shoes, tires,
                  automobiles,
                  lawn movers)
                  US
(Schul, Pride     Franchisor-        349 franchi-       Survey                       X
& Little, 1983)   Franchisee         sees               (mail ques-
                  (real estate                          tionnaire)
                  brokers)
                  US
(Anderson &       Manufacturers-     153 distribu-      Survey                       X
Narus, 1984)      Distributors       tors               (mail ques-
                  (electronic                           tionnaire)
                  components)
(Eliashberg &     Franchisor-        80 franchi-        Survey                       X
Michie, 1984)     Franchisee         sor-               (mail ques-
                  (industrial in-    franchisee         tionnaire)
                  stallations        dyads
                  manufacturer)
(Dilts, 1985)     Manufacturers-     78 retailers       Survey                       X
                  Retailers                             (mail ques-
                  (audio and                            tionnaire)
                  video home
                  electronics) US
                  Multiple
                  Marketing
                  Channels



                                                    4
______________________________________________________________ APPENDIX 2 ______


 Study              Empirical         Sample           Research          Research Ap-       Int-
                    Setting           Size             Strategy              proach         er-
                                                                       Quali-    Quan-      net
                                                                       tative    titative
 (Gaski &           Supplier/         43 suppliers     Survey                        X
 Nevin, 1985)       Dealer            + 238 deal-      (mail
                    Channel           ers              question-
                    (heavy indus-     (same manu-      naire)
                    trial machin-     facturer)
                    ery)
 (Arndt &           Manufac-          55 US dyads      Survey                       X
 Ogaard, 1986)      turer/Importer    + 104 Nor-       (interviews)
                    -Dealer Chan-     wegian dy-
                    nel (automo-      ads
                    biles)
                    US & Norway
 (Achrol &          Supplier-         333 retailers    Survey                       X
 Stern, 1988)       Retailers (air                     (mail ques-
                    conditioning,                      tionnaire)
                    automobiles,
                    books, agricul-
                    tural equip-
                    ment, com-
                    puters, office
                    supplies,
                    TV/electronics
                    etc)
 (Cunningham        Manufacturers-    3 manu-          Survey             X         X
 & Pyatt, 1989)     Distributors-     facturers        (personal in-
                    End-users         + 6 distribu-    terviews +
                    (mid-range        tors + 10        mail ques-
                    computer sys-     end-user or-     tionnaires)
                    tems)             gani-sations
                    UK
 (Frazier et al.,   Manufacturers-    51 dealers       Survey                       X
 1989)              Dealers (tung-                     (personal in-
                    sten carbide                       terviews)
                    tool industry)
                    India
 (Anderson &        Manufacturer-     213 manu-        Survey                       X
 Narus, 1990)       Wholesalers/      facturer         (mail ques-
                    Distributors      firms + 249      tionnaire)
                    (more than        distributor
                    100 industries)   firms
 (Moore, 1990)      Exporters-        81 manu-         Survey                       X
                    Distributors      facturers +      (mail ques-
                    (UK manufac-      57 agents        tionnaire)
                    turers, West      and distribu-
                    German im-        tors
                    porters)

                                                   5
______ APPENDIX 2 ______________________________________________________________


Study            Empirical          Sample             Research           Research Ap-       Int-
                 Setting            Size               Strategy               proach         er-
                                                                        Quali-    Quan-      net
                                                                        tative    titative
(Ong et al.,     Franchisor-        61 + 36            Survey                         X
1990)            Franchisee         franchisees        (mail ques-
                 (petroleum)                           tionnaire)
                 Perth,
                 Australia
(Brown et al.,   Manufacturer-      32 distribu-       Longitudinal                  X
1991)            Distributor        tors               Survey
                 (light aircraft                       (2 x identical
                 engine parts)                         mail ques-
                 North America                         tionnaires)
(Frazier &       Suppliers-         300 distribu-      Survey                        X
Rody, 1991)      Distributors       tors               (mail ques-
                 (industrial dis-                      tionnaire)
                 tributors with
                 sales revenues
                 between US$
                 1 to US$ 10
                 million)
                 US
(Katsikeas &     Exporters-         28 Exporter-       Survey                        X
Piercy, 1991)    Importers          Importer           (personal in-
                 (Greek export-     Dyads              terviews)
                 ers, UK im-
                 porters)
(Ketilson,       Wholesalers-       64 retailers       Survey                        X
1991)            Retailers (re-                        (mail ques-
                 tailer-owned                          tionnaire)
                 cooperative
                 wholesaling-
                 retailing sys-
                 tem)
                 Canada
(Brown &         Simulated          22 student         Experiment                    X
Fern, 1992)      Manufacturers-     groups
                 Wholesalers-       (4 manu-
                 Retailers Mul-     facturers
                 tiple Market-      + 6 whole-
                 ing Channels       salers + 12
                                    retailers)
(Dant & Schul,   Franchisor-        176 franchi-       Survey                        X
1992)            Franchisee         sees               (personal in-
                 (fast food res-                       terviews)
                 taurants)
                 US



                                                   6
______________________________________________________________ APPENDIX 2 ______


 Study            Empirical         Sample            Research          Research Ap-       Int-
                  Setting           Size              Strategy              proach         er-
                                                                      Quali-    Quan-      net
                                                                      tative    titative
 (Katsikeas,      Buyers-Sellers    53 exporters      Survey                        X
 1992)            (Greek manu-      (+ domestic       (personal in-
                  facturers trad-   buyer-seller      terviews)
                  ing with UK       relationships
                  importers)        of 45 of
                  Greece            these ex-
                                    porters)
 (Cronin &        Manufacturer-     117 dealers       Survey                       X
 Baker, 1993)     Dealers                             (mail ques-
                  (fluid power                        tionnaire)
                  products)
                  US
 (Ganesan,        Vendor-           100 retailers     Survey                       X
 1993)            Retailers                           (mail ques-
                  (5 department                       tionnaire)
                  store chains)
 (Nicholls,       Manufacturers-    253 retailers     Survey                       X
 Roslow &         Retailers                           (personal in-
 Laskey, 1993)    (boat industry)                     terviews)
                  US
 (Price, 1993)    Manufacturer-     1026 retail-      Survey                       X
                  Retailers         ers               (mail ques-
                  Manufacturer-     + 74 fran-        tionnaire)
                  Franchisees       chisees
                  (furniture)       (same manu-
                  Multiple          facturer)
                  Marketing
                  Channels
 (Gundlach &      Simulated         88 student        Experiment                   X
 Cadotte, 1994)   Manufacturer-     groups            (question-
                  Distributor       (44 manu-         naire)
                  (simulated mi-    facturers
                  cro-computer      + 44 dis-
                  industry)         tributors)
 (Kumar et al.,   Supplier-         417 dealers       Survey                       X
 1995)            Dealer                              (mail ques-
                  (automobiles)                       tionnaire)
                  US
 (Rawwas et       Wholesaler-       551 retailers     Survey                       X
 al., 1997)       Retailer                            (mail ques-
                  (independent                        tionnaire)
                  pharmacists)




                                                  7
______ APPENDIX 2 ______________________________________________________________


Study          Empirical          Sample            Research          Research Ap-       Int-
               Setting            Size              Strategy              proach         er-
                                                                    Quali-    Quan-      net
                                                                    tative    titative
(Webb, 1997)   Manufacturer/      3 manu-           Case Studies        X         X        X
               Service Pro-       facturers         (58 personal
               vider-Retailer     + 1 service       open-ended
               (computers,        provider          interviews +
               electrical                           62 mail
               equipments,                          question-
               hosieries, pag-                      naires)
               ing services)
               US
               Multiple
               Marketing
               Channels
(Lee, 2001)    Supplier-          95 distri-        Survey                       X
               Distributors       butors            (personal in-
               (brewery)                            terviews)
               China
(Rohm, 2001)   Manufacturer-      5 Manu-           Case Studies       X                   X
               Retailer           facturers         (personal in-
                (athletic foot-                     terviews)
               wear, automo-
               tive, financial
               services, sta-
               tionery, print-
               ing equipment)
               US
               Multiple
               Marketing
               Channels
(Webb & Ho-    Manufacturer/      3 manu-           Case Studies                 X         X
gan, 2002)     Service Pro-       facturers         (62 mail
               vider-Retailer     + 1 service       question-
                (computers,       provider          naires)
               electrical
               equipments,
               hosieries, pag-
               ing services)
               US
               Multiple
               Marketing
               Channels




                                                8
______________________________________________________________ APPENDIX 2 ______


    Study              Empirical          Sample             Research         Research Ap-            Int-
                       Setting            Size               Strategy             proach              er-
                                                                            Quali-    Quan-           net
                                                                            tative    titative
    (Duarte & Da-      Service pro-       496 dyads          Survey                       X
    vies, 2003)        viders-            (area manag-       (mail ques-
                       Resellers          ers + agents)      tionnaires)
                       (financial ser-
                       vices)
                       UK
    (Jelassi &         Manufacturer-      1 manu-            Case Study        X                        X
    Leenen, 2003)      Reseller           facturer           (personal
                        (motorcycle                          open-ended
                       manufacturer)                         interviews +
                       Italy                                 telephone
                       Multiple                              interviews)
                       Marketing
                       Channels
    (Li, Mitra &       Producer-          1 producer         Case Studies      X          (X)*          X
    Matlay, 2004)      Reseller (elec-    (or possibly       (Survey
                       tronic equip-      2)                 of 10 Small-
                       ment)                                 and Me-
                       UK                                    dium-sized
                       Multiple                              Enterprises
                       Marketing                             + 10 per-
                       Channels                              sonal open-
                                                             ended inter-
                                                             views)
    (Goldkuhl,         Producer-          1 service          Case Studies      X                        X
    2005)**            Reseller           provider           (personal
                       (motorcycles,      + 1 manu-          open-ended
                       air travel)        facturer           interviews)
                       Italy, Sweden
                       Multiple
                       Marketing
                       Channels
    (Leonidou et       Exporter-          201 export-        Survey                        X
    al., 2006)         Importer           ers                (mail ques-
                       (consumer or                          tionnaire)
                       industrial type
                       products)
                       US




*
  The study includes some extent of quantitative data analysis, i.e. a questionnaire containing nine
questions about current distribution channel structure, reasons for use of electronic channel, percep-
tion of channel conflict and practices of channel management was distributed.
**
     The major part of this licentiate study is also included as Chapter 2 of this doctoral thesis.
                                                         9
______ APPENDIX 2 ______________________________________________________________


Study          Empirical         Sample           Research         Research Ap-       Int-
               Setting           Size             Strategy             proach         er-
                                                                 Quali-    Quan-      net
                                                                 tative    titative
(Webb &        Producer-         1 service        Case Studies       X                  X
Lambe, 2007)   Reseller (wire-   provider         (personal
               less messaging,   + 3 manu-        open-ended
               computer serv-    facturers        interviews)
               ers, electrical
               equipment,
               hosieries)
               Multiple
               Marketing
               Channels




                                             10
______________________________________________________________ APPENDIX 3 ______

Appendix 3 Interview Guide



                             INTERVIEW GUIDE



Name: _________________________________                Date: _________________

Company: ______________________________                Position: ______________



1)   Describe your position at the company. How long have you been in this po-
     sition? What are your job responsibilities and objectives? What prior posi-
     tion(s) did you have?

2)   How would you describe the business of your company and the markets
     which it serves?

3)   What distribution channels are used to serve these markets. How and when
     did they evolve? (Internet)

4)   Is your overall channel strategy viewed as a source of competitive advantage,
     or potentially so? If so, how? Does your distribution channel strategy differ in
     any important way compared to your competitors’ channel strategy?

5)   When you decided to start selling on the Internet, what were the main con-
     cerns which you had?

6)   What measures did you take to overcome or minimise these concerns?

7)   What risks did you think of when you considered bypassing resellers?

8)   When looking back, what would you have done differently (when adding
     the Internet)?

9)   What do you think are the causes of conflict between your distribution
     channels?

10) Which cause is the most important?

                                         1
______ APPENDIX 3 ______________________________________________________________

11) Has this changed in any way since the Internet was added as a distribution
    channel?

12) Has the Internet created more conflict among your channels? If so, in what
    way?

13) Has the Internet reduced channel conflict? If so, in what way?

14) How do you establish the goals and objectives for each channel?

15) Are there synergies between the different channels (products, pricing, pro-
    motion)?

16)   To what extent do your channels perform the same task or activity?

17)   To what extent do your various channels interact with the same clients or
      customers?

18)   Do your channels’ managers argue about customers to serve? If so, how of-
      ten?

19)   To what extent do your different channels market identical products and/or
      services?

20) Are your channels sometimes arguing with each other because of different
    views on some issues? If so, why?

21)   How do you communicate your distribution strategy to your resellers?

22)    Do you view communication as important in order to avoid channel con-
      flict? If so, in what way?

23) To what extent can you decide the marketing strategy of your resellers?
    (store, e-tailer etc)?

24) What issues do your channels argue about? (Customers served/Products or
    Services offered/Prices/Allocation of Resources/Compensation etc.)

25) How often do they argue about these issue(s)?

26) Do you think that these issues sometimes are dangerous to the company? If
    so, why? If not, why not?


                                        2
______________________________________________________________ APPENDIX 3 ______

27) How important are these issues to the company’s overall performance, and
    ultimately, its profitability?

28) Among those issues you mentioned, which conflict issue is/was the most im-
    portant?

29) When do you think a channel conflict can become dangerous for the organi-
    sation?

30) How can you find out about a channel conflict within your distribution sys-
    tem? (Methods to measure/Customer complaints/Personnel com-
    plaints/Reseller complaints)

31) Is there any structured manner that helps identify and measure channel con-
    flicts?

32) Do you today have the same approach to Internet sales, compared to when
    you first introduced the Internet channel? (products, prices, brand name)

33) Was the channel conflict that occurred when adding the Internet channel
    positive to your company? If so, how?

34) Was the channel conflict that occurred when adding the Internet channel
    dangerous to your company? If so, how?

35)   How did channel members respond to the channel conflict?

36)   How did customers respond to the channel conflict?

37)   How do you resolve disputes between your channels?
      (Guidelines, exchange-of-personnel, negotiations, etc./Price levels/Product
      versions/Brand name/Compensation/Relational norms)

38)   What price levels do you utilize in your different channels? (Higher or lower
      online prices, identical prices in all marketing channels, auction pricing, etc.).

39)   Do your online prices include shipping costs?

40)   Do you view pricing as a source of channel conflict? If so, compared to other
      conflict sources, is it a bigger or smaller source of conflict?

41)   Do the chosen price levels aim at avoiding channel conflict?


                                           3
______ APPENDIX 3 ______________________________________________________________

42)   Has the pricing method changed from before adding the Internet until to-
      day?

43)   Can the products which are sold online be purchased through other distribu-
      tion channels? If not, how different are the products offered through various
      channels? (minor/major changes)

44)   Do you think it is possible to sell the same product under different names
      and through different channels in order to charge different prices? What
      would customers’ reactions be?

45)   Same scenario, but different brand names?

46)   Does your company compensate any of the other distribution channels for
      online sales? If so, how?

47) Overall, what impact, if any, have the Internet and e-commerce had on your
    overall channel strategy and channel structure?

48) What impact has the characteristics of the Internet had on channel conflict,
    channel strategy and channel structure?

49) How satisfied are you with your current channel strategy? What would you
    like to change in this strategy? How do you see it in the future?

50) Is there anything else that you would like to add? Are there other people at
    your company that I should talk to?




                                         4
______________________________________________________________ APPENDIX 4 ______

Appendix 4 Questionnaire
                                  QUESTIONNAIRE
This survey focuses on your company’s relationship with SAS, and specifically
with SAS’s online sales; it should take no more than 10 minutes to complete.
Please indicate the extent to which you agree or disagree with each statement. So
for example, if you strongly agree with a statement you might circle 7. If you
strongly disagree you might circle 1. If you neither strongly agree nor strongly dis-
agree, circle one of the numbers between 2 and 6 to properly reflect the actual
strength of your feeling. Remember, there are no right or wrong answers - we are
interested in what you feel.

1.a) How long has your firm been doing business with SAS?                          ________ years

b) How long have you been working in the travel agency industry?                   ________ years

c)   How many people work at your travel agency (office)?    ______________________________

                                    SASSALESINFO.COM
                                              Strongly                                  Strongly
                                              Disagree                                   Agree
2.a) Because of sassalesinfo.com, we
     utilise more information from
     SAS than we did before the                  1       2    3      4         5    6      7
     Extranet was implemented
b) We get access to such information
   from SAS that we would not have               1       2    3      4         5    6      7
   had access to before sassalesinfo.com
   was implemented
c) Because of sassalesinfo.com, the              1       2    3      4         5    6      7
   information that we get from SAS is more
   accurate than before it was implemented
d) Sassalesinfo.com has contributed to
   decrease the level of disagreements           1       2    3      4         5    6      7
   with SAS
e) The information that is available
   through sassalesinfo.com is structured        1       2    3      4         5    6      7
   in such a way that it is easy to find
f)   Too much information is available
     through sassalesinfo.com, which makes       1       2    3      4         5    6      7
     it hard to find the needed information

g) Important information is lacking on
   sassalesinfo.com                              1       2    3      4         5    6      7


h) If important information is lacking on sassalesinfo.com, WHAT is lacking?

     ___________________________________________________________________________


                                                 1
______ APPENDIX 4 ______________________________________________________________


                                          COMMUNICATION

                                              Strongly                       Strongly
                                              Disagree                        Agree
3.a) SAS has a good understanding
     of the type of information that is           1      2   3   4   5   6      7
     needed by our company
b) SAS has a good understanding
   of the frequency of information that           1      2   3   4   5   6      7
   is needed by our company

c) SAS keeps us well informed about
   events or changes that may affect us           1      2   3   4   5   6      7

d) SAS keeps us well informed about
   their products                                 1      2   3   4   5   6      7

e) SAS keeps us well informed about
   what is going on in their company              1      2   3   4   5   6      7

f)   We keep SAS well informed about
     events or changes that may affect them       1      2   3   4   5   6      7

g) We hesitate to give SAS too
   much information                               1      2   3   4   5   6      7

h) We regularly provide SAS with
   feedback about their products                  1      2   3   4   5   6      7

i)   We regularly provide SAS with
     feedback about our local market conditions   1      2   3   4   5   6      7


j)   Over a typical four-week period,
     please estimate the frequency
     with which SAS provides                   Very                            Very
     information to you via:                  Infrequently                   Frequently

     * Face-to-face interaction                   1      2   3   4   5   6      7

     * Telephone                                  1      2   3   4   5   6      7

     * e-mail                                     1      2   3   4   5   6      7

     * sassalesinfo.com                           1      2   3   4   5   6      7

     * Other, please specify
      _____________________________               1      2   3   4   5   6      7




                                                  2
______________________________________________________________ APPENDIX 4 ______

k) Over a typical four-week period,
   please estimate the frequency
   with which you provide                       Very                            Very
   information to SAS via:                     Infrequently                   Frequently

     * Face-to-face interaction                   1      2    3   4   5   6       7

     * Telephone                                  1      2    3   4   5   6       7

     * e-mail                                     1      2    3   4   5   6       7

     * Amadeus, etc.                              1      2    3   4   5   6       7

     * Other, please specify
      _____________________________               1      2    3   4   5   6       7


                                             DOMAINS
                                             Strongly                         Strongly
                                             Disagree                          Agree

4.a) SAS has given us an exclusive
     territory for their products                 1      2    3   4   5   6       7

b) The duties of SAS and the duties
   of our company are well-defined;
   only rarely is it not known who                1      2    3   4   5   6      7
   should perform a specific function
c) Sometimes SAS tries to take
   over activities that we feel are our           1      2    3   4   5   6      7
   responsibility
d) Via its direct-to-the-customer Internet
   sales, SAS serves the same                     1      2    3   4   5   6      7
   customers as we do
e) Via its direct-to-the-customer
   Internet sales, SAS markets                    1      2    3   4   5   6      7
   identical products as we do

f)   We compete with SAS’s                        1      2    3   4   5   6      7
     direct-to-the-customer Internet sales


                                             GOALS
                                             Strongly                         Strongly
                                             Disagree                          Agree

5.a) We perceive that the goals of SAS are
    compatible with the goals of our company      1      2    3   4   5   6      7

b) We perceive that SAS and we have the
   same view on how to compete within our         1      2    3   4   5   6      7
   company’s local market area

                                                  3
 ______ APPENDIX 4 ______________________________________________________________
                                                 Strongly                       Strongly
                                                 Disagree                        Agree
 c) We perceive that it is feasible for both
    SAS and for us to meet or exceed our            1       2   3   4   5   6      7
    goals

 d) We disagree with SAS about how we
    can best achieve our respective goals           1       2   3   4   5   6      7

 e) Success on the behalf of SAS’s
    direct-to-the-customer Internet sales           1       2   3   4   5   6      7
    channel comes at the expense of our
    sales


                                              RELATIONSHIP
                                                 Strongly                       Strongly
                                                 Disagree                        Agree

6.a) It would be difficult for our firm to
     replace SAS with another supplier              1       2   3   4   5   6     7

b) There are other suppliers who could
   provide us with comparable product               1       2   3   4   5   6     7
   lines

c)   Maintaining SAS is critical to our
     company’s profitability                        1       2   3   4   5   6     7

d)   It would be difficult for our firm to
     replace the sales and profits                  1       2   3   4   5   6     7
     generated from SAS’s products
e) In our sales area, there are other
   travel agencies that could provide SAS           1       2   3   4   5   6     7
   with comparable distribution
f)   In our sales area, our travel agency
     generates a considerable share of SAS’         1       2   3   4   5   6     7
     sales and profits
g) In our sales area, it would be difficult
   for SAS to replace the tasks that                1       2   3   4   5   6     7
   our firm performs
h) We expect our relationship with                  1       2   3   4   5   6     7
   SAS to continue for a long time
i)   If another company offered us a
     better product line, we would most             1       2   3   4   5   6     7
     certainly take them on, even if it
     meant dropping SAS
j)   If SAS requested it, we would be
     willing to make further investment             1       2   3   4   5   6     7
     in supporting SAS’s product line




                                                    4
______________________________________________________________ APPENDIX 4 ______
                                             Strongly                          Strongly
                                             Disagree                           Agree
k)   Our relationship with SAS is a
     long-term cooperation                       1         2   3   4   5   6      7

l)   We have invested a lot in our
     relationship with SAS                       1         2   3   4   5   6      7
m) When SAS added its Internet sales
   channel, we came close to terminating         1         2   3   4   5   6      7
   our relationship with SAS
n) The relationship with SAS is                  1         2   3   4   5   6      7
   marked by a high degree of harmony

o) We argue frequently with SAS about            1         2   3   4   5   6      7
   business issues

p) Our arguments with SAS are very               1         2   3   4   5   6      7
   intense

q) How often do you perceive that              Very                               Very
   disagreements occur with SAS on:         Infrequently                       Frequently

     * Information exchanges                     1         2   3   4   5   6      7

     * Product aspects                           1         2   3   4   5   6      7

     * Pricing issues                            1         2   3   4   5   6      7

     * Payment terms                             1         2   3   4   5   6      7

     * Commission on sales                       1         2   3   4   5   6      7

     * SAS’s sales organisation                  1         2   3   4   5   6      7

     * Advertising and other promotional         1         2   3   4   5   6      7
       activities

     * SAS’s direct-to-the-customer              1         2   3   4   5   6      7
       Internet sales today

     * SAS’s direct-to-the-customer
       Internet sales when SAS introduced        1         2   3   4   5   6      7
       that sales channel

     * Our company’s sales effort                1         2   3   4   5   6      7

     * Other, please specify

      ____________________________               1         2   3   4   5   6      7




                                                 5
     ______ APPENDIX 4 ______________________________________________________________


r)     How intense do you perceive that the
                                               Very                            Very
       disagreements with SAS have been        Weak                           Strong
       on:
       * Information exchanges                  1        2   3   4   5   6     7

       * Product aspects                        1        2   3   4   5   6     7

       * Pricing issues                         1        2   3   4   5   6     7

       * Payment terms                          1        2   3   4   5   6     7

       * Commission on sales                    1        2   3   4   5   6     7

       * SAS’s sales organisation               1        2   3   4   5   6     7

       * Advertising and other promotional      1        2   3   4   5   6     7
         activities

       * SAS’s direct-to-the-customer           1        2   3   4   5   6     7
         Internet sales today

       * SAS’s direct-to-the-customer           1        2   3   4   5   6     7
         Internet sales when SAS introduced
         that sales channel

       * Our company’s sales effort             1        2   3   4   5   6     7

       * Other, please specify

        ____________________________            1        2   3   4   5   6     7



                                    FUNCTIONALITY
 In every relationship disagreements sometimes occur. Regardless if you have had many
 or few disagreements with SAS, this part of the survey aims to capture your perception
 on which results your disagreements have led to.
                                              Strongly                       Strongly
                                              Disagree                        Agree
7.a) Disagreements between SAS
     and our firm have considerably
     increased the productivity of our          1        2   3   4   5   6     7
     working relationship
b) Disagreements with SAS
   stimulate us to find productive              1        2   3   4   5   6     7
   solutions to our problems
c)     Disagreements between SAS and
       our firm have damaged our working        1        2   3   4   5   6     7
       relationship



                                                 6
     ______________________________________________________________ APPENDIX 4 ______
                                                     Strongly                       Strongly
                                                     Disagree                        Agree
d) Disagreements between SAS and
   our firm have negatively affected                   1        2   3   4   5   6     7
   the SAS brand
e)     We are very satisfied with how the
       disagreements that we have had                  1        2   3   4   5   6     7
       with SAS have been resolved
f)     With regards to SAS’s
       direct-to-the-customer Internet sales,          1        2   3   4   5   6     7
       we are very satisfied with how the
       disagreements that we have had with
       SAS have been resolved

                                                 OUTCOMES
                                                     Strongly                       Strongly
                                                     Disagree                        Agree
8.a) The relationship between our firm
     and SAS has been very productive                  1        2   3   4   5   6     7
b) We have found the time and effort
   spent on the relationship with SAS                  1        2   3   4   5   6     7
   very worthwhile
c)     The relationship between our firm
       and SAS has been very effective                 1        2   3   4   5   6     7

d) We have a very rewarding relationship               1        2   3   4   5   6     7
   with SAS
e) Overall, the return on investment from
   selling SAS has exceeded our firm’s                 1        2   3   4   5   6     7
   expectations
f)     The growth in sales over time, from
       selling SAS, has exceeded our firm’s            1        2   3   4   5   6     7
       expectations
g)     The growth in profit over time, from
       selling SAS, has exceeded our firm’s            1        2   3   4   5   6     7
       expectations
h)     Overall, the financial results from selling
       SAS have exceeded our firms                     1        2   3   4   5   6     7
       expectations
i)     When SAS added the direct-to-the-
       customer Internet sales of motorcycles,         1        2   3   4   5   6     7
       it received a lot of media attention
j)     The media coverage was overall very
       positive when SAS added the
       direct-to-the-customer Internet sales           1        2   3   4   5   6     7
       of motorcycles
k)     SAS’s direct-to-the-customer Internet
       sales of motorcycles has considerably           1        2   3   4   5   6     7
       contributed to build the SAS brand

                                                        7
     ______ APPENDIX 4 ______________________________________________________________
                                                 Strongly                       Strongly
                                                 Disagree                        Agree
l)     Overall, SAS’s direct-to-the-customer
       Internet sales of motorcycles has had a     1        2   3   4   5   6     7
       positive effect on our profits
m) Overall, SAS’s direct-to-the-customer
   Internet sales of motorcycles has had a         1        2   3   4   5   6     7
   positive effect on our sales
n) Overall, SAS’s direct-to-the-customer
   Internet sales of motorcycles has had a         1        2   3   4   5   6     7
   negative effect on our profits
o)     We are very satisfied with the
       arrangement of our overall channel          1        2   3   4   5   6     7
       system*
p) We are very satisfied with SAS’s
   decision to sell products direct-to-the-        1        2   3   4   5   6     7
   customer via the Internet
q)     We do not think that the current
       channel system* needs to be changed         1        2   3   4   5   6     7
r)     Given the prerequisites, we feel that
       the current channel system*                 1        2   3   4   5   6     7
       is the best possible


     * Channel system refers to the WHOLE sales- and distribution system, i.e.
     the system between your company and SAS, between your company and
     the end customer, and between SAS and the end customer




     Note! Because of different paper size, the original questionnaire was exactly 3 dou-
     ble-pages long.




                                                    8
______________________________________________________________ APPENDIX 5 ______

                Appendix 5 Sample Cover Letter
                                                                   April 2007

                                                                   To: President/CEO
                                                                   Regarding: Doctoral Research
Dear Sir/Madam,
My name is Lena Goldkuhl and I am a PhD Candidate at Luleå University of Technology
in Sweden. My research focuses on business relations between producers and their resel-
lers.
In a previous study, managers at Ducati Motor Holding SpA (Ducati) gave their views on
how their direct-to-the-customer Internet sales channel has affected the relationship with
resellers. Based on that study, this questionnaire aims at capturing your (the reseller’s) per-
spective on this important issue. The questionnaire is distributed to resellers in Canada,
Great Britain, Ireland, Italy, Norway, Sweden and the USA. This study, together with the
previous study, will serve as the foundation of my PhD thesis.
Please respond to the questionnaire based on your past interactions with Ducati, and send
it back in the postage-paid envelope as soon as possible. The questionnaire takes around 10
minutes to complete.
This questionnaire is COMPLETELY ANONYMOUS. When I have received your
survey I will note that you have responded, and thereafter all identification information
will be destroyed. Only aggregated data will be published in the report, and therefore it
will be impossible to identify specific individuals or organisations in the report. In other
words, Ducati will not know how you responded to this questionnaire, so take
your chance to influence them!
Your participation in this research is of course voluntarily, but the research stands and falls
with the number of respondents. So besides the fact that your answers are very important
to Ducati, they are also of great importance to my research.

Thank you in advance for your participation in this research!


Lena Goldkuhl
Industrial Marketing & e-Commerce
Luleå University of Technology
e-mail: Lena.Goldkuhl@ltu.se

                                   Industrial Marketing & e-Commerce
                                      Luleå University of Technology
                                     POSTAL ADDRESS: SE-971 87 Luleå
                           VISITING ADDRESS: Universitetsområdet, Porsön, Luleå
                                     TELEPHONE: +46 (0)920 49 10 00
                                          HOMEPAGE: www.ltu.se

				
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